It’s a situation that no parent wants to think about — the prospect of outliving your child. Having to bury the child you raised is an unspeakable tragedy. But if you were a student loan cosigner for your child’s private loans, you may be in for more trouble than just heartache.
As a co-signer, in most cases, you are legally and financially responsible for repaying the debt should the borrower pass. You may be able to work something out with the lender, but private student loan lenders are much less flexible than their federal loan counterparts and you could be on the hook for the remaining balance.
Dealing with such a tragedy already comes with a high emotional cost, but suddenly you could be dealing with a high financial cost as well. So what can co-signers do to protect themselves financially? Get life insurance.
A life insurance policy can help lessen the financial burden of dealing with a child’s death and can also help repay any outstanding debt. If you’re a private student loan co-signer, find out how a life insurance policy can protect you and your finances.
What is a life insurance policy?
A life insurance policy is a way to provide financial security for yourself and your loved ones in the future. Let’s face it, death can be expensive with funeral costs, loss of income, and possibly remaining debt.
The point of a life insurance policy is to protect your finances from the sudden loss of income or increased financial responsibility. Through a life insurance policy, the beneficiary of the plan will receive funds related to the policy when the insured person passes. These funds can help cover costs associated with the passing.
It’s important to note there are various types of life insurance, which vary widely in purpose and benefits. In the next section, we’ll discuss what type of life insurance is best for student loan co-signers.
How life insurance can protect a student loan co-signer
Not all student loans are created equal. Federal student loans do not require any co-signers. They also include a death discharge, which cancels any remaining debt should the borrower pass.
Private student loans are a whole different ballgame. Many private student loans require a co-signer; according to the Consumer Financial Protection Bureau, nearly 90 percent of private student loans in 2011 had a student loan co-signer.
As a parent, you want to help your kids have access to whatever they need to attend college, which could mean co-signing student loans. Unfortunately, there’s little benefit for co-signers and could lead to trouble down the line.
If you co-signed a student loan for your child, a life insurance policy on your child can ensure that you can handle any financial hurdles should your child pass.
“If the unthinkable were to happen, a life insurance policy would be able to take care of the financial worries so the family can focus on grieving and other more important issues surrounding such a tragedy,” said Ross Quade, CEO at TermlLifeInsurance.com.
If you are suddenly responsible for a $100,000 private student loan and have to take over payments, you could find yourself struggling to make payments and keep up with saving for retirement and managing your own financial responsibilities.
You will want to get a life insurance policy that will cover the costs of a funeral as well as the private student loan debt. So if your child is taking out $100,000 in private student loans, you should get a policy that covers all of that and more.
In order to determine your life insurance needs, you can calculate how much you need.
“A parent that co-signs on a child’s private student loan should consider term life insurance policies,” said Quade. According to Quade, a term life insurance policy is a good idea for the following reasons:
- They can choose to have the policy in place for a specific amount of time — the life of the student loan.
- They are generally the most affordable, especially if the insured is young and healthy.
- A term life insurance policy will have a death benefit to cover funeral costs (which average around $10,000); a cash value that can be used to pay off the student loan; and can secure future insurability as the beneficiary ages.
Using term life insurance, you could get a policy that could easily cover the cost of private student loans for a period of 10 to 30 years.
Life insurance for younger folks is inexpensive as well. Depending on lifestyle, age, as well as other factors, you could get term life insurance for $15 to $30 per month or less. You may be able to get a discount if you pay in full annually.
What to do before buying a life insurance policy
A life insurance policy can be a good idea for student loan co-signers in order to protect their finances. But before shelling out any money on a policy, become an empowered consumer first.
First, check in with your private student loan lender and see if they have an official death discharge policy. If they don’t have a formal policy in place, getting life insurance may be a safe bet. If they do have one, a life insurance policy may not be a necessity.
Secondly, determine how much life insurance you need. What will cover the costs of the loans, funeral costs, and more? Next, research various places to get life insurance and weigh the prices and the coverage.
“Be sure to shop around and speak to an agent about your specific needs,” advised Quade. “Buying term is by far the cheapest option to consider [but] be careful not to fall into a life insurance salesman trap. Always remember that you should never buy more than you can afford.”
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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 firstname.lastname@example.org, 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|