Their Loans May Be Your Loans

Life Insurance

Some life insurance policies offer options that can help if you become ill.

Student loan debt is increasingly common. In 2020, a record 45 million borrowers owe over $1.5 trillion in student loan debt.1 Student loans come in a variety of flavors that can impact students—and their families—for decades.

Being approved for loans can be difficult, especially for students, as they often have little credit history and no income. Over 50% of loan applicants are rejected, which can result in needing a cosigner. Among private undergraduate loans, over 90% of cosigners are parents or guardians.2

While parents generally expect their student children to repay these loans on their own, cosigners are as legally responsible for the loan as the student. So, missed or late payments can impact the cosigner’s credit score. The mere presence of the student loan can affect the cosigner’s ability to borrow for him or herself.

Some lenders do discharge cosigned loans if the student dies; where such provisions do not exist, Life insurance on the student should be considered to minimize that particular risk.

To minimize being a cosigner for decades, find a loan with a cosigner release provision, ideally based on a specified number of on-time payments.  Otherwise, rarely can the cosigner be released. In fact, in recent years over 90% of such requests were rejected.3 One way out of being stuck is if the cosigned loan can eventually be refinanced and approved without a cosigner.

Bottom line: Cosign a loan as a very last resort. Consider all loan options, even parent loans, before cosigning a student loan.

1https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics
2Measureone.com. Private Student Loan Report Q1 2020.
3https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-90-percent-of-private-student-loan-borrowers-who-applied-for-co-signer-release-were-rejected/

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