Key message: Do not borrow from New Jersey Student Loan Program
Yes, you are missing something. Banks can offer credit life insurance (on some types of loans) but it is an expensive product. If the bank requires credit life (they never do) if becomes part of the APR and must be disclosed as such, as a required fee. Interest rate remains at 5%, APR shoots to 30%. Or more.
Banks do not offer term life insurance or other traditional insurance products, only credit life, disability, some property insurance on security, and unemployment insurance. Banks can’t offer other products, can’t run other businesses, only banking. Sometimes they have an affliated broker business, in a side office, with a ‘close’ name (Wells Fargo Planning Services) but it is a separate business and anything they sell is not part of the loan, including the premium, and the purchaser can name any bene . Any student loan borrower could go get a term policy from the bank affiliated insurance company or some Met life or Mutual of Omaha or the neighborhood insurance man, but the beneficiary is whoever the policy owner wants, not the lender, and the premium is paid separately and cannot be included in the loan.
So now the student is borrowing $30,000 from a private lender AND paying $25 per month for a term life insurance policy? I don’t see many people doing that. They assume, like this mother did, that the loan would be forgiven on death so why buy the extra policy.
Citation please @Zinhead?
@Erin’s Dad - Here is a link to a post by @fragbot with the citation.
http://talk.collegeconfidential.com/discussion/comment/19785534/#Comment_19785534
As for the Bennett Hypothesis, here is some background.
http://www.nytimes.com/2013/11/03/education/edlife/catching-up-on-the-bennett-hypothesis.html
I disagree. There is no good public policy reason for the State to be in the student loan business.
I doubt that the mother had such a thought, particularly one financially-challenged enough to co-sign those loans. I mean who assumes that they will outlive their kids?
I’m fail to see that
For example, in last two years, my daughter’s school increased tuition by $2768 (almost 8%), yet my daughter still could only borrow $5500 of unsubsidized loans. I had to pay the increase!
The thing I find staggering is that the New Jersey HESAA (Higher Education Student Assistance Authority) has no maximum loan amount hence the family who were able to borrow $832,295. The whole thing is totally irresponsible on the part of the lender and the borrower.
You’re right, they don’t think about having to pay the loans they co-signed, and they don’t follow the advice in the loan pamphlet to get outside term insurance. But the co-signing is taking on a debt just like any other debt, and you have to pay it back no matter what happens - if the student drops out of school, if the student isn’t a very good student and never gets a job after graduating, if the student gets arrested and can’t pay, and if the student dies. No one wants to think that their child is not going to be successful but lenders have seen it happen too many times so require the co-signer.
If someone takes a mortgage with a second person (spouse, relative, friend) and then that person dies, no one thinks the bank should just give the house to the survivors. The house is security on the loan. For a student loan, the co-signer is the security on the loan being paid.
This story is like the other dozen or so threads on CC. Its what came first the chicken(increase in college tuition) or the egg(exorbitant loans). As long as there are lenders who offer loans with little to no credit requirements, will we continue to see tuition increasing at ridiculous rates.
Now I am pro Stafford/GSDL(back in my day)/Direct loan, and I am glad the government limited the amount to 27k Outside of that, no student should be able to get a loan of any significant size in his name. At that point you go private, which typically means you need a cosigner. Sorry, but I have no sympathy when TWO people have read the loan app, and then are shocked when they have to pay back such a large amount. The PLUS loan program should also take into account the ability to pay, and not just your payment history, prior BK, etc.
I will say, that states cutting their education budgets, has also contributed to the rise in tuition.
Our college advisor suggested that we purchase life insurance as a safeguard against the exact situation this mother finds herself to be in. It’s a rather morbid thought and certainly no one ever wants to consider for a moment their own child’s mortality, but it does make financial sense if you are co-signing for a significant student loan.
Thank God I never borrowed from the state of NJ - I thought that you could only use in-state loans if you went to school in-state? With the greatest respect to the late Kevin DeOliveira, I’m not entirely sure that borrowing that much/paying premium to attend UVM over going to Rutgers is very advisable.
Absolutely repulsive from the state of NJ.
The state is just offering a product like any lender would. Not (in any way) usurious as one attorney in the article accused (usury is often 45%, and I’ve never seen a usury rate under 12%). This state program has investors to provide the capital, and the program is competing with the commercial market. If the investors find a better deal, a better return somewhere else, the entire program could dry up. Unlike the federal lending programs, the state can’t just print more if it loses money. If the borrower can find a better deal at a private lender, that borrower should take the private loan.
As long as the terms are clear, I have no problem with the loan program setting the conditions, including the interest rate and when to write off the debt. It appears that not only did the pamphlet not imply the debt would be forgiven upon death, it advised the co-signer to take out insurance in case a death occurred. I think it is foolish to not have a lending cap, but that’s up to the managers of the program. Texas set different conditions. Mass did too. Some states have no such program at all.
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The PLUS loan program should also take into account the ability to pay, and not just your payment history, prior BK, etc.
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Absolutely! The idea that parents can take out huge Plus loans which are MUCH larger than they could ever afford to pay back is crazy. It’s often a back-door way for kids to borrow more than THEY will ever be able to pay back…but then pressure their parents to borrow with the promise that they (the students) will pay them back.
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For example, in last two years, my daughter’s school increased tuition by $2768 (almost 8%), yet my daughter still could only borrow $5500 of unsubsidized loans. I had to pay the increase!
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@4kidsdad
? Increased twice since your DD was a frosh? Is your DD a rising junior? Her loans should increase each year… Am I mistaken? Don’t your kids go to a CC for their first 2 years? Or is that another father of 4 kids who posts here?
5500
6500
7500
7500
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With the greatest respect to the late Kevin DeOliveira, I’m not entirely sure that borrowing that much/paying premium to attend UVM over going to Rutgers is very advisable.
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quite true.
In fact, NJ is doing more harm than good with these loans. It’s like helping someone jump off a cliff…
@Zinhead thank you
Perhaps, but the state has an unfair advantage in that it can float bonds cheaper than the commercial market. So in that sense, its not true competition. In any event, I agree with mom2:
Enabling more debt is just dumb public policy, IMO.
@mom2collegekids happy we’re in agreement for once. 
Normally I consider myself a “softie,” but this is one of the few situations where I just don’t have a lot of sympathy for the people who find themselves in these messes. The mother who is having to pay back her son’s loans at $180 a month (not a huge amount, IMO) says,
“We’re not going to be poor because of this,” she said. “But every time I have to pay this thing, I think in my head, this is so unfair.”
Why is this unfair? She willingly co-signed a debt and agreed to repay it, no matter what. There are very few debts that are dischargeable by death. If she doesn’t repay it, who does? Well, the bank eats it and those losses are passed on to others. Why should that be the case?
Some people don’t seem to realize that if these loans were not available on these terms, they a) would not be available at all; or b) would only be available at credit-card interest rates. Maybe NJ should not be making student loans available to anyone, but that, to me, is a different discussion. The borrowers went into this with the information available. The brochure advised them to purchase life insurance. If you choose not to follow that advice because you think - what are the chances? - well, the chance of death is always there. The borrower here took the gamble and lost.
I disagree. For the reason that you suggested:
And if was not available due to state action creating and encouraging a moral hazard, the mom would not be in this position.
This is not just a NJ thing. It is a cosigner situation. My mother’s husband had cosigned a private college loan for his son and when the son accidentally died a few years ago, not only was the loan not forgiven, but my mother’s husband was asked to pay the balance in full immediately, which he did. Luckily he was able to.
This was not in NJ.