Between October 1 and December 31, 2015, private debt collection companies hired by the Department of Education garnished more than $176 million in wages from defaulted student loan borrowers in order to pay back their debts.

These garnishments were all related to federal student loans which never need a cosigner, but private student loans are co-signed by a parent 90% of the time. What happens if you co-sign your child’s student loan and they are unable to pay? Private student loans do not have the same garnishment powers that federal student loans have, but the lender can still pursue you and even take you to court to try to collect the amount due because you co-signed the loan.

Even if your child has great career prospects post-college, there is one scenario in which your child, despite their best intentions, won’t be able to repay their loans: an untimely death. Unlike federal student loans, private student loans are not discharged upon the death of the student. If a parent co-signed the loan, they are on the hook for it, too. Imagine dealing with the death of your child and finding out that you are also responsible for repaying tens of thousands of dollars in outstanding private student loans. Fortunately, there is one simple, and relatively inexpensive, safeguard against this scenario: life insurance.

Many parents don’t consider purchasing life insurance for a child, but if you’re co-signing private student loans, you should seriously consider taking a policy out yourself or requiring your child to purchase a policy.

Life insurance rates depend on factors such as age, health, and size of the death benefit you want. The younger and healthier your child is when they purchase the policy, the lower the premiums will be. A 20-year term life insurance policy with a death benefit of $100,000 could be as low as $10 per month.

Although you may be able to add coverage for your child as a rider on your own life insurance policy, this is probably not the best option for covering student loans. Most riders will cover the child only until they reach the “age of maturity†which is often age 21, but may vary among carriers. Unless the policy is converted once the child reaches the age of maturity, they could be left without coverage and several years of student loan payments ahead of them.

Of course, with $1.2 trillion in outstanding student loan debt, even with life insurance it’s wise to think twice about how much student loan debt your child should really take on. You should also explore all federal student loan options before taking out a private loan, but if you do need to turn to private student loans, life insurance should be part of the plan. It’s an inexpensive solution but the penalty for not buying life insurance can be emotionally and financially devastating.
Source | March 28, 2016