Hey dad, can I borrow $150,000 to get my MBA?
I can only imagine the reaction from my dad if I asked that question 20 years ago. What’s the matter kid, did you lose your mind?
Bloomberg/Business Week had an article about kids hitting up their parents for loans to pay for graduate school. The issue of borrowing money from parents was talked about on this blog before. It’s a great deal for kids but it’s a questionable proposition for the parents.
1. Parents are conflicted by the love they have for their kids. They can’t possibly separate the emotion from the business deal. Parents should gift the money with no expectation of repayment. Don’t lend! It’s a repayment fantasy!
2. Parents won’t do the appropriate credit analysis on their kids. What’s the source of repayment? What’s the alternate source of repayment? What’s the kid’s history of repayment? Is the loan for sugar and lemons still outstanding when they started that lemonade stand at age 7?
3. The incentive to do well in school may be less if someone else is paying the bill. The Bloomberg piece showed kids like the idea of no recourse if they don’t repay the parental loan. Other sources of lending will come after them. It’s human nature that if I have little at risk there is less incentive to push hard for results.
4. There’s no guaranty a job will be waiting at graduation that will cover the loan payments. Parents, you should expect to be repaid in this lifetime. Yours, not theirs. The tech bubble was created by expectations of future income. Don’t buy into that illusion.
5. Legacies are created and destroyed by debt. The parent and child will alter their financial legacy forever by becoming lender and borrower.
Parents, are you strong enough to resist the loan application from your kids? Need someone to tell them no? Call me.
- A Guide to Personal Loans (creditloan.com)
- Get an Idea About Different Types of MBA Education (socyberty.com)
- The Real MBA (suraen.wordpress.com)
- Lending Money to Friends: How to Ensure Good Karma, Not Bad Blood (dailyfinance.com)
- Private Lending Tips: Sunday Morning Thoughts 15 May 2011 (backedbyrealestate.com)
- Credit Requirements Tightening for VA Loan Borrowers (vabenefitblog.com)
- Building a Credit History (wisebread.com)