Types of student loans

Take a poll among your friends, chances are many of them would say they have some sort of student loan debt. And of course, more than half of all American students now have college tuition to pay back, with nearly $1.6 trillion in outstanding student loan debt in the nation. So, yeah, it might be a while ‘til The White House forgives all that… So unless your college degree was fully funded by the bank of mom and dad, you probably have some scrilla to pay back. But, the scenario of what happens if you pass away before paying your loans off really depends on the type of loans you have—either federal or private.

Federal loans

Issued by the U.S. Department of Education, federal loans usually die with you. This kind of debt is generally forgiven upon you—the borrower— kicking the bucket (or in some cases, becoming disabled), and your family members are not on the hook for it. Of course, your parents, spouse, or whoever you’ve chosen to handle your affairs will need to prove that you’re dead by sending an original or copy of the death certificate to the necessary provider (so faking your own death is probably out, sorry).

Private loans

On the other hand, private student loans, which are more like traditional loans, are almost never forgiven. Why? Well, these loans usually require a cosigner, who becomes responsible for paying off the debt if you, the student, die. With that said, all this depends on how your loaners are feeling. Although rare, it’s not unheard of for private cosigned loans to be forgiven. If you got your loan before Nov. 20, 2018 (and your lender doesn’t have an official discharge policy), you may be eligible for a “compassionate review” that could end in your loans being forgiven or co-signer released. So do your research and see if this applies in your case. Also, before we forget to mention, private loans are almost always forgiven if there is no co-signer—but unless you had the bank account of Snoop Dogg and the credit score of Bill Gates in your pre-college years, it’s unlikely this applies to you.

Student loans life insurance plans

Getting a life insurance plan should be a no-brainer if you have student loan debt or a cosigned student loan. A cosigned loan, by the way, is a loan signed by someone else (so there are two signatures on the loan) who is also legally responsible for repaying the loan. You probably knew that already, though.

So, a life insurance policy is a simple way to ensure that this someone else isn’t left on the hook for your student loan debts (and really most of your debts) if you were to die unexpectedly. And outside of covering your school costs, a student loan life insurance policy can, of course, give your family some extra financial stability. As always, youth is on your side here as life insurance costs tend to go up with age. Your monthly price is locked in when your plan starts, so if you sign up in your 20s, you’ll be getting that spring-chicken discount.

Now that you know how to protect your debts and your co-signers from dealing with them, let’s get into the different types of life insurance to consider, depending on your needs.

Term life insurance

With a term life insurance policy, you pay a fixed amount each month to get coverage for a “term” of 10, 15, 20, or 30 years. If you die in that time, your family/loved ones/whoever you put down as your beneficiary will get paid. This is a great option for young folks who don’t have too much money to spend.

So if you’re thinking about getting term life insurance, lean towards the 20-30 years coverage. Because although you may think it will only take six years to pay off your student loans, in reality, it takes closer to 20 years. A 20-year, $100,000 term policy for a healthy 20-year-old could cost as little as $10 per month—and that might be enough to cover your student loan debt, and then some. Mom and dad could even snag themselves a couple of mobility scooters with the leftover money. The only downside is that if the policy expires before you die, your beneficiaries won’t receive the payout, obvs.

Whole life insurance

With a whole life policy, it lasts your whole life. Yes, that’s right, it never expires. It also has a cash value that you can borrow against while you’re still alive. But, it also costs a hell of a lot more than term life insurance (roughly five to fifteen times more). On the flip side, this kind of insurance has fixed premiums, so you’ll pay the same amount each month, even if your health deteriorates. But that’s not always a good thing because you’ll be paying several hundred dollars per month (roughly $335 for a 30-year-old male) vs. the low double digits you’d be paying with a term plan. And although this kind of policy sticks around for your whole life, do you really need it to? Once your student loan debt is paid off, why would you want to be paying all that money? Unless you’re allocating money to inheritances or estate taxes (which we’ll take a guess that you aren’t), you’re probably safe to skip on a whole life insurance plan.

In conclusion

So that was a lot. But, no worries. If you’re a little hazy on the details of when you do or don’t need life insurance to cover student loan debt, we’ve got a little recap for you here:

If you have a private student loan with a cosigner, and it’s a hefty debt, like hefty enough that your poor cosigner would have some trouble paying it off, then you probably need life insurance to cover it. And don’t forget to make your cosigner the beneficiary.  And If you have federal student loans in your name and your name only, then you’re off the hook when you die. These loans are forgiven and don’t need to be repaid (thank you, overlords). Remember, though, federal loans always need a proof of death certificate before they’re forgiven; otherwise, everyone would be claiming death to bypass paying them back.

Overall, a student loan life insurance plan can really take the heat off your loved ones if you were to die unexpectedly. Outside of covering your student debt, life insurance can cover any other expenses that may crop up, e.g., funeral costs, car payments, etc. If you have a cosigner on a private loan or any dependents, you probably should sign up for a term life policy with a 20 or 30-year term and make your co-signer the beneficiary. Remember, private student loans still need to be re-paid whether you’re alive or not. And some loan repayment schedules are accelerated after a death (some of them even ask for repayment in full as soon as they get an inkling of your passing—sucks, we know). So make sure you’ve got your bases covered. If you’re not sure whether or not you have a co-signer, check your files and figure out the details because you don’t want to leave the co-signers that hooked you up in a financial bind.