Whether you’ve recently graduated or have been in the workforce for years, at some point, you may be thinking of going to grad school.
Grad school can be a great next step to boost your career or try your hand at something else. The only problem? Grad school can cost a pretty penny. I should know — I took out an additional $58,000 in student loans for my master’s degree, which helped me fulfill my dream of going to NYU.
If you’re thinking of going to grad school, you’re probably aware that you may have to take on student loans to make your dreams a reality. When you’re young and single, those student loans usually aren’t a consideration for anyone but yourself (unless you needed a co-signer to get them.) But, if you’re married and taking out student loans, you’re potentially taking on a debt burden that would impact your spouse and children.
If you’re single with a loan co-signer or married with children and taking on debt, did you know that you might need life insurance?
What Happens to Student Loan Debt When You Die?
When deciding if you need life insurance to cover grad school debt, it all comes down to what happens to your student loan debt after you die? It’s not a pleasant thought, but it’s vitally important for you to know.
If you’re single and need a co-signer for your student loans, that debt would likely fall to your co-signer if you were to die. And, If you’re married and take out student loans during the course of your marriage, your spouse may be on the hook for your student loan payments, whether they co-sign those loans or not.
According to the website TheVirtualAttorney.com, “Not only do co-signers risk being left with hefty student loan payments, but the spouse of a deceased individual may also be put in a tough spot.” This is especially true of couples that live in a community property state because typically both spouses are liable for debts incurred during the marriage.
Currently, there are nine community property states: California, Washington, Wisconsin, Arizona, Idaho, Louisiana, Nevada, New Mexico, and Texas.
You should always know what would happen to your debt if you were to die, whether you’re married with financial dependents or single and carefree. But if you have financial dependents and are about to incur some serious debt, it becomes even more important to understand.
Different Lenders, Different Rules
If you’re only taking out federal student loans, there is a death discharge that states that your loans will be completely discharged upon your death. Some people still decide to purchase life insurance as a way to provide “just in case” peace of mind and to replace the income they plan to make once they finish college. That’s a personal decision though.
If federal student loans don’t cover all of your tuition needs, you may need to take out private student loans, which is where things get a bit tricky.
Currently, there is no formal death discharge for private student loans. Some lenders may grant a death discharge, but there is no standard rule across private student loan lenders.
In addition, many private student loans require a co-signer. If your private loan isn’t discharged upon death and if your spouse or parent is a co-signer, it is highly likely that he or she would be left with that debt if you died. And, if you’re married, you must consider that your spouse would also need to maintain their day-to-day lives without your financial contribution or the added income your post grad school job maybe would have given you.
Should You Get Life Insurance?
Let’s face it, thinking of your own death can be an unpleasant experience. It’s something you (rightfully) think about rarely, if you’re young and healthy. But life insurance is about thinking of the future and protecting your family.
So if you have financial dependents and are thinking of going to graduate school and student loans are part of that reality, a term life insurance policy is probably a good idea to help protect your family’s financial future. Especially if you take on private loans.
Term life insurance is for a specific term length — and in this case, can align with your repayment term, if you only want to purchase a policy to cover the student debt. So let’s say you borrow $80,000 in student loans and expect to pay it back over ten years. Whether you’re single or married, to protect your family or co-signer, you could purchase a term life insurance policy with a term of at least ten years, with coverage to pay for any remaining student loan debt, funeral costs, and loss of income.
And term life insurance is very affordable. Assuming excellent health and that you get the best rate class, a Haven Term policy can cost a 35-year-old woman $22.67 per month for a 20-year, $500,000 policy.
Having a life insurance policy in place helps protect your loved ones from burdensome debt when you die. This way, should the unthinkable happen, your spouse is financially protected and can pay off your remaining private student loans. If you’re single with no kids or financial dependents and have federal student loans, a life insurance isn’t necessary to cover student loan debt.
Grad School and Life Insurance
The last thing a grieving family should have to do is to unexpectedly deal with the financial burden of student loan debt.
If you’re married and thinking of going back to school, good for you! It’s never a bad time to invest in yourself. However, if you must take on private student loans to make it happen, a life insurance policy could be a sound investment to protect your spouse from the burden of debt.
Melanie Lockert is a personal finance writer, event planner and founder of the award-winning blog Dear Debt. She paid off a total of $81,000 in student loans. As a creative professional, Melanie runs on coffee, wine, music and a good standing desk dance party.