Life Insurance Can Cover Student Loan Debt If You Die

With the total student debt in the United States being $1.6 trillion and approximately 44.7 million student borrowers averaging a debt total of $29,900, you are probably wondering what happens when the borrower dies, especially if that’s you. Is your debt going to be passed to your surviving family members? Unfortunately, 73% of student borrowers don’t know what happens to their debt after they die.

First things first. Make sure you identify what type of loan you have – whether federal or private. All federal loans are forgiven at death. Yet, private student loans aren’t forgiven at death even though many private student loans these days do. So, is life insurance going to cover your remaining debt? It all depends.

If you have a co-signer on your student loan, your student debt could pass to your cosigner after you die. For instance, if your parents or spouse co-signed on your student loan, you can make them beneficiaries of your life insurance policy, even on policies that aren’t that large if your policy covers your student debt obligations. A term life insurance policy is a great option for those that are still young and healthy.

If you don’t have a cosigner on your loan, your student loan obligations won’t be passing on to anybody. However, for those living in a community property state, the spouse may be responsible to pay the student debt. Make sure you read the fine print because your lender may come after your estate.

In order to navigate student loan debt successfully, you must take several steps. First, understand the terms and conditions of your loan. In other words, find out how they are going to treat your loan in the event you die or become disabled. Second, talk to your family about your loans and make a list with relevant information. Thirdly, you can also remove co-signers. The process may vary by lender. While having a co-signer is not necessarily a bad thing especially if you don’t have a strong credit yet, it’s good for you to start building your own credit.

Overall, getting life insurance works best in this type of scenario. Term life insurance will cover you for 10 to 30 years, so if you die during that time, you are covered. However, when the term expires, coverage expires with it. Find out whether your employer includes life insurance as part of your benefits package. In most cases, it’s advised you have your own policy since the policy may end with your job.

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