Success Story: Tapping the Bank of Mom and Dad for college loans
Rebecca Benison entered Adelphi University knowing a scholarship would cover half of her tuition each year and her parents would pick up the rest of the tab.
But she also knew that after graduation she’d have to pay them back.
See, it’s a neat thing her family worked out.
Her parents first fronted the money for her older sister to attend Adelphi University, which is only about half an hour from their home in Valley Stream, N.Y.
When she graduated, it was Benison’s turn to attend college. The money daughter No. 1 began paying back to her parents went toward tuition for daughter No. 2.
Now daughter No. 3, the youngest child in the family, is at Adelphi University, too, and Benison’s payments to her parents are going toward her younger sister's tuition.
“It works for all of us,” says Benison, 22, who earned a bachelor of arts in communications in January 2011 and began working as an editor for a press release distribution website just two months later.
This all-in-the family method saved all three girls from applying for federal or private college loans and paying interest. Considering that Benison’s final bill from her parents amounted to $37,000, this interest-free financing represents quite a savings.
“I just think it’s a lot better,” Benison says. “I don’t have interest compiling. It’s just personal debt, which I really prefer.”
Benison worked part time throughout college, first at the campus bookstore and then in the public affairs office, where she wrote press releases and articles, gaining career-related experience for her resume.
She used her earnings to contribute to the household, buy textbooks and clothes, and pay for summer and add-on credits associated with her internships.
Once she had her degree in hand, Benison didn’t delay paying her parents back, even giving them half of the money she received in gifts at her graduation party “to get the ball rolling,” she says.
Then the three sat down and determined a set amount she’d pay each month.
“I give them half my paycheck, pretty much,” she says, noting that the amount increases when her younger sister’s tuition bill is due. She also gave her parents half of the holiday bonus she received, in an effort to pay them back quicker.
Just over a year into her career, Benison has repaid $14,200 of what her parents loaned her. At that rate, she estimates it will take two more years to finish paying them off, although she’s hoping to be done sooner than that.
This steady progress is possible because Benison keeps her expenses low. “I’m very good at working on my budget and finding ways to get things really cheap,” she says.
Not only does she continue to live at home, she also does without a car, relying instead on mass transportation, friends and her boyfriend for rides. Since she works from home, she has no expenses related to commuting, work attire or lunches out.
If she uses her credit card, Benison pays off the full balance when the bill arrives. “I try to pay cash whenever I can,” she says. “The credit card is an emergency thing.”
She’s gotten her boyfriend in on the act. Although they’ll go out to dinner for special occasions, most dates are inexpensive, like renting movies or heading to nearby New York City to visit museums that require only a donation for admission.
“I don’t think I’m really making sacrifices,” she says. “I still get things that I don’t necessarily need. I just don’t spend a fortune.”
Given that her long-range goal is to save a down payment to buy a home, Benison plans to continue her frugal ways when she’s finished repaying her parents.
She doesn’t feel that purchasing a home will be a problem, since she has a good credit score and is far more financially secure than many of her peers.
“I read all these stories that you see in the news about people who are so completely overwhelmed with debt,” Benison says. “I’m so grateful that my parents were able to help me out.”
Benison’s tips for being financially savvy during and after college:
- Live at home, if you can. Benison estimates that she saved about $10,000 a year by commuting and doesn’t feel like she missed out by not living on campus.
- Don’t make minimum payments. Adjust your spending to repay college loans as quickly as possible. Don't drag it out as long as a lender will allow. You want to be debt-free as soon as possible.
- Look for ways to make extra money. Every dollar counts. Benison even takes online surveys that pay in credit she can use at online merchants.