How to Handle the Cost of Adoption When You Have Student Loan Debt

You’re finally in a place where you can pursue one of your lifelong dreams: adopting a child. You’re ready to get started with the adoption process and expand your family. But let’s face it, the costs can add up. The costs of adopting can run you between $15,000 to $60,000, according to data from the Children’s Bureau.

If you have to manage that expense alongside student loans, you might be freaking out about how you can pay for it all. Though it won’t be easy, it’s possible to adopt a child and pay off student loans. Read on to learn more about managing adoption costs and student loan payments.

How much does it cost to adopt a child?

You might think you have an idea about the cost of adoption, but the actual costs can vary widely depending on a lot of factors. The Children’s Bureau states that adoption costs outside of the welfare system can run between $15,000 to $40,000. That range jumps up to $20,000 to $50,000 for intercountry adoptions.

Additionally, domestic adoptions must be processed in court. Some intercountry adoptions may have to be processed in court as well. What that means is you’re paying even more in court fees, which can range from $500 to $2,000. Legal representation for adoptive parents can range from $1,500 to $4,000.

These numbers are much lower if you go local and adopt through the foster system. According to AdoptionNetwork, adopting through the foster care system can cost up to $2,000. That is, without travel.

Paying thousands of dollars to adopt a child might seem especially difficult when you’re also still paying off thousands of dollars in student loan debt. With a plan, however, you can find the resources to make it possible.

Adoption and student loans: managing payments

If you’re in the process of adopting a child or want to adopt a child soon, you’ll likely need to adjust your finances to prepare for an addition to your family. Not only is adopting a child costly, but raising one is too. That means you may need to cut back your budget or figure out ways to earn more.

In regards to your student loans, there are numerous ways you can make your payments more manageable. Unfortunately, most of these solutions are for federal student loan borrowers only. If you have private student loans, talk to your lender to see what options are available. For federal student loan borrowers, here are some options.

Deferment or forbearance

You can contact your loan servicer about deferment or forbearance for your student loans. Each option is about putting a hold on your payments for a specific period.

If you have subsidized student loans, you won’t have to pay any interest that accrues during deferment.

Deferment and forbearance have different eligibility requirements and time restrictions so it’s best to contact your loan servicer about the situation to see what is the best fit. If you're unsure of who your loan servicer is, you can find out through the National Student Loan Data System.

Consolidate and extend repayment

If you have more than $60,000 in federal student loans, you can consider consolidating your loans and taking advantage of a 30-year repayment.

Extending your repayment term will lower your monthly payment, making your student loans more manageable. However, you’ll also pay more in interest as well, which is something you should be aware of before going this route.

Income-driven repayment

If you want to continue to make payments but wish to make them more affordable, going on an income-driven repayment (IDR) plan is best. The IDR program offers federal loan borrowers four different repayment options:

• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)

All four of these options allow borrowers to pay 10% to 20% of their discretionary income for 20 to 25 years, based on the plan. If there’s still a balance at the end of the repayment term, you can get the loan balance forgiven. But you’ll also be responsible for the taxes on it, as Uncle Sam considers forgiven loan balances taxable income.

Student loan refinancing

One of the reasons that student loans are costly is the interest. This is especially so if you have Direct PLUS loans for parents and graduate or professional students, which have the highest interest rates of all federal student loans. Interest accrues daily on student loans, so a reasonable loan balance can turn into a nightmare rather quickly.

Federal student loan interest rates are fixed, meaning they don’t change. But you can change your interest rate if you refinance your student loans.

Student loan refinancing is available through several private companies. You take out a refinancing loan at a lower interest rate. That new loan pays off your current student loans.

So ultimately, your loans at the higher interest rate will be paid off and you’ll have only one loan left at a lower rate.

Student loan refinancing can help you consolidate your loans and save money on interest. But it also depends on your credit, if you get approved and for what rate.

You want to make sure the interest savings are worth it because when you refinance you give up the benefits associated with federal loans. Federal loans offer student loan forgiveness as well as income-driven repayment, both of which are not available once you refinance with a private lender.

If you’re certain you want to pay off your student loans ASAP and won’t need to take advantage of these benefits, then refinancing could be a good decision. You can consider a fixed rate with a 20-year repayment term to cut down on your monthly payment as well as the interest rate.

Adoption loans and adoption grants

You might be feeling the pinch of student loan repayment and not have the funds available to adopt quite yet. But you don’t necessarily have to put your adoption on hold because of costs. Though not an ideal option, you can apply for adoption loans.

For example, through the National Adoption Foundation in partnership with Citizens (yes, also the same bank you can refinance student loans with), you can borrow between $5,000 to $50,000. You don’t need to provide any collateral to secure the loan.

You can also look into funding options with a local credit union or look into personal loans from companies like Upstart or SoFi®. Personal loans can be used at your personal discretion, so they can be used for adoption-related costs.

Additionally, you can look into financial assistance through Lifesong for Orphans, Help Us Adopt and Gift of Adoption grants.

Adoption loans and adoption grants can help you cover the costs related to adopting a child. But, though they’re used for a good cause, they’re still loans you have to pay back. You want to be mindful of how much you borrow and at what interest rate, especially if you’re already tackling student loan debt as well.

Tax credits for adopting

Though costs related to adopting are high, the good news is there are some tax credits for adopting.

According to the North American Council on Adoptable Children, “For adoptions finalized in 2019, there is a federal adoption tax credit of up to $14,080 per child. The 2019 adoption tax credit is not refundable, which means taxpayers can only use the credit if they have federal income tax liability. The credit applies one time for each adopted child and should be claimed when taxpayers file taxes for 2019.”

To claim the credit, you can fill out Form 8839 from the IRS on Qualified Adoption Expenses. To qualify for the credit, you must meet certain income and eligibility requirements.

Financial requirements for adoption

In addition to preparing for the cost of adoption, you also need to make sure you meet financial requirements to qualify for adoption. But how much do you have to make to adopt, exactly? How much you need to make to adopt a child is based on your income in relation to the set poverty guidelines.

According to Children of All Nations and data from U.S. Citizenship and Immigration Services, parents’ income must be 125% of the poverty level based on your family size. On top of that, there are home studies that will require more information.

According to private adoption agency American Adoptions, here are some items that may be included in a home study:

• A report of overall family income, assets, and debt ratio
• Verification of family income (through a tax document such as a 1040 or W-2 form)
• Proof of health insurance
• Breakdown of monthly living expenses and other costs
• A credit check

These items are used to assess whether your family can take on the responsibility of adopting a child from a financial standpoint. You don’t necessarily have to be wealthy, but you do need to live within your means and be able to cover the costs associated with raising a child.

Before pursuing adoption, make sure you meet these financial requirements for adoption and have your paperwork in order.

You can adopt a child and pay off student loans

If your dream is to adopt a child but you have student loans, it can feel like you can only afford to do one or the other.

While it would certainly be beneficial to pay off your student loans before adopting, you can’t necessarily put your life on hold. Even if paying off your student debt will take a long time, you don’t have to deprive yourself of everything you want to work toward in the meantime, including adopting a child.

You can do both. You can make your student loan payments more manageable and take advantage of adoption grants and tax credits to help you cover the cost of adopting a child. The rewards of both can be tremendous.