Life Insurance & Student Loan Debt

Earning a college degree is a dream many people pursue and accomplish. But while there are many opportunities that come with higher education, there can also be a substantial price tag.

Student loan debt is one of the largest financial burdens facing Americans today. A growing question among students and graduates is what happens to this debt if they pass away. While the answer to this generally depends on your individual situation, having a life insurance policy can ease some fears associated with leaving debt behind for loved ones.

By having a life insurance policy, you can provide money to your loved ones to use for any reason, including paying off any student loan debt they may be held responsible for after you pass away.

Private vs. Federal Student Loan Debt

Depending on the type of loans you have — either federal or private — different things can happen to your debt if you pass away before paying it all off.

Federal student loan debt is forgiven upon death or total disability and family members or your estate are not responsible for it. In this case, a life insurance policy payout to your beneficiaries could go to other things, like helping them with day-to-day expenses or replacing some of the income you provided while alive.

Private student loan debt may be different — you’ll have to ask your lender what their rules are about student loan debt if you pass away. In many cases, a private lender may require a cosigner to continue paying the balance.

If you have private student loans, ask your lender if they provide student loan death forgiveness. This will help you know what kind of debt you might leave behind should you pass away, giving you a better estimate for how much life insurance coverage you need.

Are Cosigners Responsible for Student Loan Debt?

With private student loans, cosigners may be on the hook for your student loan debt if you pass away. If your lender doesn’t offer student loan death forgiveness, you can generally expect that whoever cosigned your loan will be responsible for the debt.

For federal loans, things get a little tricky. If one of your parents cosigned a federal parent PLUS loan, the debt is discharged in the event of either your or their passing. If both parents cosigned this loan and only one of them passes away, the other parent is still responsible for the debt if you are still alive, too.

Are Spouses Responsible for Student Loan Debt?

If you pass away and your spouse is still alive, they may be responsible if your state classifies student loan debt as shared marital or community property — even if they didn’t cosign the loans. If you take out a loan while married in one of these states, the loan is considered to be owned by both you and your partner. There are currently nine community property states:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Alaska allows spouses to opt into community property, meaning you can choose whether or not to consider your assets as shared. It’s possible for a lender to come after your estate after you’ve passed if your student loan debt is considered community property. And if your estate doesn’t have the money, your spouse will be responsible for the loan.

If you have private student loans, it’s wise to include at least the amount needed to cover those loans should you pass away before they’re paid off when calculating how much life insurance coverage you need. And even if you only have federal loans, life insurance can still be a great benefit to your loved ones by providing some financial protection after you’re gone.

Life Insurance Policies for Education Loans

Student loan debt is a huge concern for so many people, especially those just starting out after college. But life insurance can be there to help ease some of that concern. Depending on your needs, there are different types of life insurance to consider.

Term life insurance

Term life insurance offers coverage for a specific period of time, like 10-, 15- 20- or 30-year terms. If you pass away while the policy is in effect, your beneficiaries receive a payout of the coverage amount you chose when you bought the policy. However, if the policy expires before you pass away, your beneficiaries won’t receive the payout.

This is a great option for younger people or those with a smaller budget, since term life insurance is usually less expensive than other types of life insurance.

Whole life insurance

Whole life insurance is coverage that lasts your entire life.¹ While it’s typically more expensive than other types of life insurance, it has living benefits like cash value and potential dividends.² Whole life insurance also has fixed premiums, which means your premium payments won’t increase, even if your health changes.

Flexible life insurance

Flexible life insurance is a type of policy that allows you to customize your coverage, even after you’ve purchased a policy. You can change the amount of coverage the policy provides, the amount of premiums you pay and when you pay them, and get additional coverages3 to further customize your flexible life insurance policy. This type of life insurance also has living benefits, like whole life insurance, including cash value accumulation. Flexible life insurance is a great option for those who need a life insurance policy that can be modified to fit your life’s changing needs.

Find out more about how to pay off student loan debt so you can be debt-free sooner. Connect with your American Family Insurance agent to discuss your life insurance options and find the policy that best fits your needs.

These are brief descriptions of coverage and are subject to policy and/or rider terms and conditions which may vary by state. Fixed and guaranteed premiums are statements about the policy as determined at issue, and any changes made to a policy may affect the premium and are subject to our underwriting rules. The words lifetime, lifelong and permanent are subject to policy terms and conditions. Whole Life and Flexible Life policies mature at age 121. Please check with an American Family agent for details on coverages and restrictions.

1. Subject to policy terms and conditions.

2. Dividends are not guaranteed.