News Release

New Jersey Department of
Banking and Insurance

Commissioner Tom Considine

For Immediate Release:
September 1, 2011

For Further Information:
Ed Rogan or Marshall McKnight (609) 292-5064

TRENTON – With the new school year beginning, New Jersey Department of Banking and Insurance Commissioner Tom Considine today urged parents, if they are co-signing for their child’s college loan, to consider purchasing life insurance to cover the guaranteed debt.

Most federal and many private college loans – but not all – include debt forgiveness clauses in the event of death, Commissioner Considine said. Students and parents who co-sign for the loans without such clauses should make sure that they have some form of protection in the unfortunate event of the student’s death. Students and their families should plan for the unexpected and investigate the benefits of a life insurance policy.

“There have been cases, heretofore rarely, where parents have been held responsible for a child’s college loan when the child dies. That is a double tragedy,” Commissioner Considine said. “Parents should not have to deal with such a thing at a time of great loss.”  

Considine said if parents who co-sign are unable to find college loans that include debt forgiveness, they should consider purchasing insurance policies for their child that would help defray the costs of the loans in the event of the child’s death. Once the student graduates, he or she should assume responsibility for the policy.

“A life insurance policy for a college age student is typically relatively inexpensive and could cover the costs of repaying hundreds of thousands of dollars in loans in the event of an unexpected tragedy,” Considine said.

According to the National Center for Education Statistics (NCES), over the last decade undergraduate tuition, room, and board at public institutions rose 32 percent, and at private institutions the cost rose 24 percent, after adjusting for inflation. Meanwhile the federal government’s maximum borrowing level in recent years has not mirrored the increasing costs and the long term outlook has the borrowing level remaining constant. This has created a growing gap between the cost covered by federal loans and the actual cost of attending college.

Nearly 50 percent of full-time students took out federally financed student loans in 2007-08, the latest numbers available from the NCES. According to the U.S. Department of Education, federally financed student loans can be canceled or reduced in the event of a student death. Some of the larger commercial lenders, such as Wells Fargo and Sallie Mae, also have similar policies regarding debt forgiveness. Not all do, however, and consumers should consider life insurance to cover these instances.   

“I strongly urge parents who are co-signing on a college loan for their child to be sure that they have insurance to cover any amount they are signing for that does not guarantee debt forgiveness,” Considine said. “It is critically important for consumers to ensure the loan they choose doesn’t hold loved ones accountable. If the loan does not include cancellation or forgiveness provisions, purchasing life insurance may be a reasonable and affordable backup plan.”