In this article, we will discuss student loan insurance. Did you know you can get student loan default insurance? That’s right, you may buy numerous insurance policies that will make your loan payments and/or pay off your debt if you are hurt, die, or become handicapped. Student loans are in flux right now, with payments temporarily suspended and proposed loan forgiveness in play, as we detailed in a previous blog article, but it is still crucial to have contingency plans in place for your loans in case you are unable to make the payments.
Bankruptcy Law Is Important
This is critical because, unlike other types of debt like credit cards, medical bills, and car loans, student loans cannot be discharged in bankruptcy, so they will follow you for the rest of your life (unless you pay them off first!). If you become handicapped as a result of an accident or injury and are unable to make your student loan payments, the lender can put your loan in default and send it to a collections agency, which will harass you for payment while also ruining your credit. If you become disabled, the last thing you want to deal with is a defaulted student loan. Due to a permanent disability, it is possible to have federal student loan debt dismissed in bankruptcy. Still, it is a difficult procedure, and even if you are successful, the discharged loan will be considered taxable income, and the government will issue you a big tax bill on the loan amount.
Insurance for Disabilities
Disability insurance pays benefits to you if you become temporarily or permanently handicapped, and it continues to cover your student loan payments while you are unable to work and earn revenue. This is usually inexpensive and can be added as a rider to your existing disability insurance policy. Inquire with your current insurer about adding this rider to your policy.
Life Insurance for Student Loans
This isn’t the most entertaining topic, and you won’t be the light of the party if you start with it, but student loan life insurance is an important financial product to have as you become older. Term and whole life insurance are the two most common types of life insurance. Term insurance is a straightforward product in which you purchase a $1 million insurance payout and the policy expires after 20 or 30 years. Whole life insurance is more involved and expensive, so we’ll stick to term life insurance for the purposes of this essay. You should get term life insurance, which will pay out a benefit if you die unexpectedly, and this benefit can be used to pay down your student loan debt. It’s crucial to note that if you die unexpectedly, your federal student loans will be canceled, so you won’t need term life insurance if you solely have federal loans. If you have private debts, you should consider purchasing term life insurance since if you die, the loan provider will seek repayment from your estate and/or your parents if they co-signed for the loan.
Do you require student loan protection?
Assume you worked hard for years to earn a bachelor’s degree and then went on to medical school, law school, or another professional program. However, just as you’re getting started in your job, you’re hit by an accident or a major disease, rendering you incapacitated and unable to work. You not only need to pay for your daily costs, but you also have student loan debt — a lot of it.
If you are unable to work, how will you be able to make those payments?
With the average student graduating with just under $30,000 in student loan debt and graduate and professional students frequently carrying $100,000 to $150,000 or more in debt, it’s no surprise that such a scenario makes debt-laden grads nervous.
It’s also not unexpected that there is a market-based solution to the problem: student loan disability insurance. The Guardian Life Insurance Company of America recently announced that its Student Loan Protection Rider on its individual disability policy would now be available to anyone seeking disability income insurance who has student loan debt. “For as low as $5 per month, Guardian’s Student Loan Protection can be bought for either a 10- or 15-year term,” the business noted in a press release. Multiple sources, up to $2,000 per month, can assist applicants to secure their capacity to pay their student loans in the event of disability, including undergraduate debt. Until a claim is submitted, no loan proof is necessary.” (That figure is based on a 30-year-old male, occupation class 4M, 90-day elimination period, 15-year term, non-discounted generic rates, and $500 monthly coverage.)
Should Your Student Loans Be Insured?
Is it necessary to ensure your student loans? It’s a good question and one that those with significant debt should consider. Late student loan payments can have a substantial influence on your FICO score, and a small issue can soon turn into a big one.
If you become handicapped and are unable to repay your consumer bills, you can apply for bankruptcy and have all or portion of your debts discharged. Your ability to meet those responsibilities is primarily determined by your financial condition in the months before filing.
But it’s more challenging with student debt. Disabled borrowers must frequently demonstrate that they will be unable to return to work and repay their loans in the future, and only a small percentage of them are successful in having their obligations discharged in bankruptcy.
It is also possible to have federal student loans forgiven if you are totally and permanently disabled, but this option may come at a cost. Unless the borrower qualifies for the “insolvency exception,” student loan debt that is canceled due to incapacity is considered taxable income. It may not be an option for more transitory disabilities, such as those caused by an accident or a major illness like cancer.
“With one-in-four 20-year-olds becoming disabled before retirement and student loan obligations on the rise, this rider seems extremely intriguing,” says Jeff Rose, CFP and publisher of GoodFinancialCents.com. “Anyone interested should first conduct a detailed examination of their budget to ensure they are not ‘insurance poor,’ meaning they are paying too much for all of their insurance coverage.” If the budget makes sense and there is a significant amount of student loan debt, it is worth considering.”
This program is a rider to a disability insurance policy, according to Lawrence Hazzard, Guardian’s vice president of product and marketing strategy. As a result, coverage is only available for a short time — often 10 to 15 years — a “high-risk period” for professionals who “have invested a significant amount of time and money” in their educations but owe more money than they are currently earning. The rider can be canceled when it is no longer needed without canceling the full disability insurance.
According to Hazzard, the business discovered that this rider, which was previously only available to professionals such as doctors, dentists, and attorneys, was so popular that it was being requested by other customers with significant student loan debt. It is now available to “any working adult with school loans” who meets the disability insurance requirements. That means the insured must have a source of income and finish an application successfully. The rider is especially popular among medical school students.
What are your options?
If you cannot afford or qualify for this type of insurance due to financial constraints, make sure you look into other possibilities as soon as possible if you become disabled and unable to work and pay your student debts. Bankruptcy (sure, it’s difficult, but not impossible); postponement or forbearance of payments; income-based repayment; debt forgiveness programs; or discharge due to total and permanent incapacity are all options. Some of these solutions are not available for students in default on private student loans, so it’s critical to look into them as soon as possible.
Student loan ombudsman meeting
Giving all Washingtonians a fair chance to share in the District’s wealth and economic growth is a primary focus of Mayor Muriel Bowser’s administration. One of the most effective ways to reach this goal is to obtain a college education. However, the high cost of college and graduate school is a serious issue for District families and students. Many students use loans to help them achieve their goals. As a result, graduates have significant student loan debt.
Student loan servicers operating in the District of Columbia must be licensed by the Department of Insurance, Securities and Banking (DISB). You can contact Ricardo Jefferson, the Student Loan Ombudsman, at (202) 727-8000 or [email protected] if you have questions about your student loans.
The Student Loan Ombudsman, a position formed in 2017 by the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016, assists DISB in making higher education more accessible and affordable for District citizen
In three ways, the Ombudsman helps students and their families:
Aids families and prospective students in locating alternative funding sources and reducing student loan burden.
This course teaches college graduates how to comprehend loan repayment alternatives and how to find and qualify for debt relief programs.
Aids in the regulation of student loan servicers as well as the resolution of borrowers’ grievances.
The Ombudsman is an objective and confidential resource that assesses the problems of District borrowers and student loan servicers in order to facilitate collaborative solutions. The Ombudsman is unable to represent debtors or make decisions about loan forgiveness or repayment programs.
The Ombudsman can provide information and help on a variety of student debt-related concerns, including:
- College financing sources
- Repayment plans for student loans
- PSLF stands for Public Service Loan Forgiveness.
- Resolution of student loan servicer complaints
- consolidation of student loans
- Preventing student debt default.
Resumption of Student Loan Payments is a related topic.
- Planning and Funding for College
- Student Loan Grievances
- College Resources for Aspiring Students and Families
- Annual Reports of the Student Loan Ombudsman
- Annual Report Forms for Student Loan Servicers
- Webinars by the Student Loan Ombudsman
- Video of the Student Loan Ombudsman Program