These days, student loan debt is as American as apple pie. Whether your dream is a white picket fence or all the avocado toast you can eat, if you went to college, you likely have student loan debt.
Seeing money drained from your bank account every month can cause a lot of stress. But you know what’s worse? Not being able to make those payments because you’re disabled and can’t work.
Long-term disability insurance helps protect you from life’s unknowns and ensures you have a paycheck even when you’re not working. For anyone still paying off student loan debt, disability insurance is a must-have so you don’t fall behind on your loan payments.
Why people with student loans should buy long-term disability insurance
Long-term disability insurance is important for a lot of people, because not many of us can afford to go without a single paycheck, nevermind go months or years without getting one. Even emergency funds only go so far.
But disability insurance is particularly important for people with student loans, especially new grads. Why?
- The student loan burden is frontloaded. According to research by Payscale, graduates one year out of school pay around 30% of their income to their student loans. Ten years after graduation, that number drops to 10%. For recent grads, that means it’s easy to fall behind early on. It’s hard enough to pay off student loans, and the last thing anyone needs is to be behind the 8-ball when their payments are highest.
- Pay is low early in careers. We all have to pay our dues, and it takes some time before we’re making the big bucks. New grads are stretched thin with low incomes, “adult” expenses, and student loans on top of all of that. There may not even be enough wiggle room to create a robust emergency fund yet. The point is, high expenses and low income mean missteps are even more costly. A disability insurance policy guarantees that you have some money coming in if you’re disabled, and even if you earn a low salary, some money is better than none.
- Student loan debt is at a record high. American student loan borrowers have a collective $1.4 trillion in debt. And it’s not just your four-year university attendees; enrollment in postsecondary education, like medical school, has been on the rise in recent years. Doctors and lawyers may be high earners one day, but until then they have relatively low pay and relatively high student loan debt. There’s a lot of risk out there as more and more students take on loan, and it’ll only get higher in the coming decades.
Just like student loans are an investment in yourself, so is long-term disability insurance. You’re protecting your most valuable asset – your ability to make money – and taking a big risk by not having the protection you need, especially while your debt is so high.
Student loan disability riders
A standard long-term disability insurance policy will help cover all of your expenses. You apply for a policy, including a specified length of time (the benefit period) and coverage amount (up to 60% of your net income), and you can use the benefit for whatever expenses you see fit.
But when it comes to student loans, a student loan disability rider can give you a little bit of extra protection.
An insurance rider is a tweak to your policy to customize it to fit your needs. In this case, for a small addition to your monthly premium, a student loan disability rider adds on coverage to the benefit amount that goes toward student loan payments. There are some caveats to student loan disability riders:
- Coverage is usually capped at somewhere around $2,000-$2,500 a month.
- The student loan benefit goes directly to the provider, not the beneficiary.
- There may be limits on the degrees/professions that qualify for a student loan disability rider.
A student loan disability rider is an affordable addition to a policy – popular insurer Guardian offers riders starting at $5 a month – and can work well for someone with high student loans who wants to make sure there’s dedicated protection going to that debt.
Total and permanent disability discharge
If you’re a borrower who got your loan from the federal government, you have another option to avoid falling behind on your loans if you become disabled: a total and permanent disability (TPD) discharge.
A TPD discharge applies to the following public loans:
- William D. Ford Federal Direct Loan (Direct Loan) Program loan
- Federal Family Education Loan (FFEL) Program loan
- Federal Perkins Loan (Perkins Loan) Program loan
- Teacher Education Assistance for College and Higher Education (TEACH) Grant service
There’s a difference between being disabled for a while and being totally and permanently disabled, and the guidelines for proving that your TPD is strict. The Department of Education notes you need to have confirmation from the Department of Veterans Affairs (if you’re a vet), the Social Security Administration (if you receive Social Security disability insurance), or your doctor. Each method requires specific documentation.
Still, if you have federal loans, it’s important to look into if you qualify. TPD has a huge impact on your future earnings, and you would be doing yourself a huge disservice if you didn’t do everything in your power to eliminate your debt.
Like other types of insurance, disability insurance gets more expensive the older you get. Paired with the facts that, in general, your student loans are higher the younger you are, and your pay lower, it’s never too early to buy long-term disability insurance and protect yourself.
This article was originally written by Colin Lalley for PolicyGenius.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|