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Life Insurance as a Student Loan Safety Net

With increases in college tuition outpacing inflation every year, many students turn to loans to cover the cost of school. Financial institutions generally require a cosigner on these loans to secure the student’s debt—nearly always the student’s parents.

This is all well and good assuming the student graduates college and finds a job after graduation. The student will eventually pay off his or her loans, and the parent’s name on the loan application as cosigner will have been merely a formality.

But what if something tragic happens to the student before the loans are paid?

This financial nightmare came true for the Masons, a couple from California. Their daughter had taken out nearly $100,000 in student loans in order to pay for nursing school. She was working as a nurse and in the process of paying off her loans when she died suddenly of liver disease at the age of 27.

On top of the devastating loss of their daughter, the Masons had cosigned their daughter’s student loans, meaning that they were now responsible for payment. Unlike federal student loans, private institutions will not discharge student loans upon the death or permanent, total disability of the student. The Mason’s once-stellar credit has been ruined, and they are currently paying over $2,000 per month toward their daughter’s student loans, while they support their grandchildren.

No parent wants to entertain the thought of losing a child. However, there are steps you can take to soften the financial impact of such a possibility.

Term life insurance is an ideal way to protect yourself from unexpected tragedy. Term life rates are extremely reasonable—potentially as little as $10 per month, depending on the amount of coverage you need. As soon as you are sure that your child will need to take out loans to cover his or her tuition, start looking into life insurance. Be sure to take out a large enough policy to cover the total amount of debt your child will be taking on.

In all likelihood, your child will finish college and pay off his or her student loans without a problem. Given what happened to the Masons and many other families like them, however, it is better to think ahead and be prepared for a remote possibility than to take a risk and be caught unprepared.


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