Though outstanding federal student loans are discharged when you die, this isn’t always the case with private loans. So when a borrower with a private loan dies, the co-signer may be on the hook for subsequent payments.
Even if your spouse doesn’t co-sign for you, he or she can also be held liable for a private student loan if you borrow while married and you reside in a community property state.
Term life insurance, which provides coverage for a stated period of time and at a relatively low cost, can help protect against that. Presumably, the borrower will have paid off most, if not all, of the loan by the time the policy’s term has ended.
“I find that when I’m working with people in their 20s and later, the amount of student loan debt I see is considerable,” says Creedon, a financial advisor with Crystal Brook Advisors in New York.
One client of Creedon’s in her 30s is planning her wedding, and she’s bringing $130,000 in student loan debt to the marriage. As part of an overall financial plan, Creedon recommended that she purchase $150,000 of life insurance in a 20-year term policy.