This is the last problem I need to think about. I will graduate with a lot of student debt. If something bad happens, who pays the bill?
You are right, this is the last thing we all want to think about. Checking online, there is even a market for insurance to pay off student debt, just in case. Your question is becoming more relevant this decade, as the amount of debt owed by each student balloons. Read this disturbing article quickly, so you know the facts, but read it.
In college, there are nearly 20 deaths for each 100,000 students, in an academic year. Students are also frequent visitors to the ER at student health services. Difficult to compile stats on how many injured students are forced to withdraw from school or are disabled for work later. There are 2 unfortunate outcomes: your surviving family may be responsible for your debts, or you are unable to work and pay them off yourself.
A staggering 44-million Americans are burdened with student loan debt, so it is only natural you want to know if it could be passed to someone else. Whether a debt is passed on after death depends on the type of loan.
Comforting news comes from a federal student loan, which is discharged if the borrower passes away. A Parent Plus loan also falls under the umbrella of federal student loan, with the same outcome. Even though the parent is usually obligated to pay the loan, it is still discharged if either the parent or the student dies. However, the remainder of the debt, though cancelled, becomes taxable income for the parents.
Private student loans can be confusing, some offer death discharge, but many do not. They are considered as personal loans and any guarantor may be liable. Generally, if the loan is in your name alone, family members will not inherit the debt.
Any co-signer is directly responsible for your debt in the event of your death. In some cases, the entire balance is due immediately. Depending on the state, your spouse may be responsible for your debt, if you acquired it during marriage. Loans that were taken out before marriage are not usually transferable, providing your spouse has not co-signed.
Disability is another unfortunate consideration, where you have to prove you cannot continue working and resume debt payments. The possibility of discharging your debt for disability depends on the type of loan. Either way, you may have a safety net with disability through government insurance programs, says CEO Mark Prip, Medicare Supplement Insurance provider.
The average student graduates with over $30K in debt, so it is wise to protect your financial security. There are a number of insurance policies for students to cover these unfortunate possibilities. Many are term insurance that cover you for years after graduation, before you have saved enough to cover your debt, explain insurance experts at OurLifeCovered. With the knowledge given above, your first task is to research your student loan discharge policies.
Death pays all debts, Shakespeare.
Written by John Regan, former Director of Sales, for equity research.