co-signer on college loansIf you are a co-signer on a college loan or are going to be, keep in mind that in some cases you will be legally and financially responsible for repaying the debt should the borrower pass. It’s a situation that no parent wants to think about, but you may be in for more trouble than just heartache if something were to happen.

Some lenders will forgive loans under these circumstances on a case by case basis, but private student loan lenders are much less flexible than their federal loan counterparts and you could be on the hook for the remaining balance. So what can you as a co-signers do to protect yourself financially? Get life insurance.

Figuring out whether you should look into life insurance starts with understanding what type of loan you are a co-signer on.  Student loans made by federal lenders are considered public loans, and those made by private companies are private loans.   In general, public loans have lower, locked-in interest rates, as well as special programs for unemployed or low-income borrowers or people who work in public service. In contrast, private loans have variable interest rates that are subject to increase, which makes them harder to pay off. Because of their reliability, public loans are considered a relatively safer choice, but their availability is limited.

Public loans generally provide for a discharge upon death. As long as the borrower’s family can provide documentation and paperwork the co-signer will be released from the responsibility of paying off the debt. Privately backed student loans have a track record of not being as generous. As a co-signer you the balance of the loan may become your responsibility, or will go after the diseased estate to get at least part of the loan balance paid off.

You can avoid any possibility of that happening by having a term life insurance policy in a sufficient amount – and a long enough term – to pay off the student loan debts in the event of an unexpected death. The policy death benefit can match the amount owed, and be reduced in the future, as the loan balance is paid down, and eventually retired completely.

The good news is that our affiliation with Smith Brothers Insurance now provides our clients with access to Life Insurance Professionals who can work with you to get a policy that can fit in your budget and help protect your family in the event something unexpected like this were to happen.  Give us a call, we would be happy to introduce you.