Many recent graduates are usually weighed down by thousands in college loans. In fact, about 40% of students usually owe over $20,000 after graduating! That’s double the figure a decade ago. This is based on a report recently released by experts from Consumer Security Bureau. These experts calculate the number of students owing loans over $50,000 has more than tripled. That’s based on growth from 5% to 16% over that period. Students have their whole lives ahead of them – or so it seems. Sometimes, tragedy occurs and those loans are passed on to grieving family members. Plan for the future to avoid extra pain. Students should consider life insurance plans to cover their student loan expenses.

Who Pays for the Loan

Betsy Mayotte, director at the Consumer Outreach and Compliance for American Trainee Aid, says the financial obligation on the student’s loan must be upheld. This has to be the guarantor or cosigner in the event that the student passes on. Ms. Mayotte notes that unfortunately, parents and guardians of students rarely consider student loans and life insurance together. In the event a student passes on, cosigners must take charge of the loan payments. Usually, this means the entire outstanding amount of the loan. Mayotte claims spouses are also often made to pay outstanding student loans for deceased partners. This happens even when spouses did not cosign. Spouses may be called upon to meet the obligation of other loans their partner sustained throughout the relationship. This danger can be avoided.

With the right life insurance plan, you can avoid repayment of student loans for the deceased. According to John Ryan, Principal of Ryan Insurance Coverage Method Professionals, these policies are quite affordable. Ryan contends it is quite sensible to do so, even if young people are not at a high risk of death under normal circumstances. Insurance companies know there is low risk involved; policies are thus affordable. For example, a $250,000 insurance plan with a maturity period of 10 years, taken by a 25-year-old student, costs only about $100 per year.

The Right Life Insurance Policy

To determine your coverage, analyze the terms on offer. This will help you know what to expect in the event of your death. Federal student loans are usually written off in the event of student death. The same applies even to cases where the parents or guardians of the student sign for the loans. Outstanding amounts can still attract tax attention. According to Ms. Mayotte, co-signers may still have to face some level of financial obligation – whether the loans are written-off or not. Mr. Ryan contends that some, though not all, financial institutions may write off the debt if students are handicapped or die. It is you to scrutinize the terms of financing from your institution to understand exactly what will happen in case of death.

Should you determine life insurance coverage is necessary to cover the debt, find a policy covering the whole amount for the whole term. This is according to CFP Carrie Jones – an insurance expert with Life Planning Partners in Jacksonville, Florida. Jones advises a single policy, stating it’s cheaper to protect a $50,000 loan instead of splitting the amount into two separate $25,000 policies. This is true even while over time, loans diminish as students repay them. Taking a one-time policy works out to be cost-effective in the end. Some life insurance providers allow policyholders to reduce their coverage many times over the policy term. According to Ryan, it is important to ask about this while talking to insurers.

Getting Things Right

Carries Jones says the parent, guardian or otherwise co-signer of the student-loan should be named the beneficiary of the life insurance policy. This protects co-signers in the event students fail to keep up with loan payments, cancel the plan, or die. Life insurance plans can be transferred back over to the graduate, should the need occur. If the worst happens and a student passes on, co-signers should ask their insurance provider about their options for compassionate review. In some cases, this can help erase the balance of the loan. This is not guaranteed. Ms. Mayotte holds life insurance is the best way assure loan co-signers are not left in a tight spot if the student were to die.

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