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“Ask The Experts” is written and provided by Scholarship Media. It does not reflect the views of The Collegian or its advertisers.
What happens to my student debt if something bad happens to me?
As if being in a lot of debt were not bad enough, this is probably the last thing you want to think about. However, taking this unfortunate hypothetical situation into consideration is responsible, and there are now a number of insurance policies that cover student debt.
While death at college is not that common, there still are 20 fatalities per 100,000 students every year in the U.S. Students also find themselves in the emergency room or at student health services more often that they should be. Figures on how many students are forced to withdraw from studies due to accident or illness are hard to come by. The two possible outcomes are that you are unable to work and pay off debts later or your family bears the burden of your debts.
With 45 million Americans carrying a total national student debt of $1.4 trillion, this situation could apply to a lot of people. It is only natural that you want to know where the debt goes if something unfortunate happens to you. Loan consultants at Credit Cube state that the ability to discharge a debt largely depends on the type of student loan you have taken out.
Federal student loans are the best ones to have in this situation, since the debt is discharged if the borrower passes away. A death certificate needs to be provided to the loan issuer by your next of kin for this to be actioned. The same applies to a Parent Plus loan, which comes under the heading of federal student loans. The parents are usually obligated to pay the debt, but it is still discharged if they or the student passes away before it is paid off. A drawback is that the remainder of the debt is considered taxable income, so the survivors may end up with a heavy tax bill replacing the debt.
Private student loans are more complicated. Some have a death discharge, but many are treated as personal loans, so the cosigner will be responsible for making repayments. If the loan is solely in your name, it is unlikely that your parents will be forced to repay it.
Cosigners carry the burden of the debt, so they will be made to pay it off, in many cases in full, in the event of your death. If you acquired the student loan through marriage, your spouse may be responsible for it. However, this depends on state regulations where you live.
In the event of a disability, you will need to prove that you cannot return to work or resume debt repayments. Workers under 65 are eligible for Medicare benefits if they are unable to work for more than 24 months. The possibility of having the debt discharged if you are disabled depends on the type of loan taken out.
A number of insurance policies are now available to cover student debts in the event of death or disablement. Some deal with a limited time period and will cover you only when you are at most risk and have limited funds. When you are older and earning more, your ability to pay off debts will improve.
“Many a poor soul has had to suffer from the weight of the debts on him, finding no rest or peace after death,” Lady Gregory.