Credit is made available to people in all forms. And a fundamental principle is the higher the risk of the credit, the higher the cost of the credit. So if a 17-18 with no credit-worthiness walks into a bank and asks for a loan of, say, $50,000, the bank will laugh at them. That is why subsidized (guaranteed) loans are made available, but only in amounts up to about $25000 total. All other student loans require a co-signer (the parents, usually). These are unsecured loans, which typically would not be availabe to the average student. The other option is to put your tuition on a credit card for 27% interest. No one is entitled to a car loan or mortgage or student loan on the terms that they demand (and those car loans and the mortgage will most certainly not be discharged on death). If you can’t afford the car, the mortgage, or the tuition, you look elsewhere.
What NJ is doing here is offering an alternative for those who would not otherwise be able to obtain affordable credit. That is why I said that whether or not NJ should is another discussion. The fact is, no one is required to take these loans from NJ. The students and parents here are looking for a way to afford something that they cannot. They have other options (cheaper schools, different loan provider). So yes, I think that whether we should protect people from their bad decisions is another question.
The parent wouldve come out better taking out a PLUS loan, as they are discharged in case of death. I guess she didnt want the loan in her name, but as @LKnomad mentioned, this is a cosigner issue. When you cosign, you are agreeing to pay the loan if the primary borrower cannot.
It was alluded to earlier but there’s a trivial solution to a mess like this: if you are a co-signing a loan for someone and you expect them to do most of the payments, buy an appropriate amount of life insurance to cover your risk. If you don’t want to accept the risk, don’t co-sign.
It’s sad that the kid died but it’s not sad she’s still paying.
@twoinanddone it certainly sounds like you know more than me on this subject. But some quick googling indicates $100K of term for people in their early 20s for just over $10/mo. Is there a reason it would be more expensive than that here?
This whole discussion reminds me of that moment when our D was sitting with 2 acceptances, one to the safety school that turned out not to be a real safety since she really, really didn’t want to attend there, and the good fit expensive school. D declared that the safety just wasn’t an option and she would have to just take out a ton of loans to pay for the good fit school. We gently pointed out that she was not capable of getting enough in loans unless we cosigned for parent loans and we were not willing to do so. She was stunned by this info. We had originally insisted on applying to a real safety (she assured us it was a school she was willing to attend) and that the good fit school could only be applied to on the condition that she recognize it was only an option if they offered substantial merit aid (which there was reason to expect but did not come through)
Thankfully another acceptance came a week later for a school we could afford with no loans. It turned out to be the perfect fit. But man that was an uncomfortable week.
My point is I have a lot of sympathy for people who make poor college funding choices. I think we need to fix it all: educating parents and students on the risks and real costs of loans, making affordable college options available, not allowing predatory lending practices, and taking personal responsibility for our choices.
Premiums are set by the company. If you can find one for $10/mo, great. I worked for a high interest lender and credit insurance was about $250 for a $3000 loan for 3 years. Credit insurance is truncated, so the first month you are insuring $3000 and the next month $3800, down to the last month of $100 or whatever the payment is. We also sold term life, and I don’t remember the cost but it was a $5000 policy and a lot more than $10/mo even for a 20 year old.
I still don’t think many people will go out and buy a policy. If it was available from the lender, they would buy it at the time of the loan, but I really doubt people who are borrowing $50, $60, $70k for college are going to go buy even a $120/yr policy. It’s like buying the extended warranty on a car or appliance -buy it at the time of purchase or just forget about it. A few will search out a warranty program but the majority do not.
I’m surprised no one thinks the U of Vermont shouldn’t just refund the money it charged for tuition since this student never used the education. Why is it the lender’s obligation to forgive the debt?
I feel sorry that this womans son was murdered, I cant even imagine her sorrow. I dont feel sorry she has to pay back a loan she cosigned, which she 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.”
So she wants a loan forgiven, when she can fully afford to pay?
Note that life insurance does not cover the possibility that the borrower becomes disabled to the point of not being able to work (or work to earn enough to pay off the loan) but does not die. However, individual disability insurance may be expensive, probably because of more fraud and adverse selection.
^^This is credit insurance, where the lender is paid off in the event of death. Government loans (Stafford, Perkins, Plus) do not offer credit insurance, and it’s unlikely any state loan programs do either. A private bank could if it isn’t prohibited by the student loan regulations (I don’t think it is prohibited). It would be expensive for a student loan. Very expensive. Prohibitively expensive for a $100k, 10 year term loan.
If someone bought a separate term policy, it is unlikely the lender would be listed as the beneficiary. The insurer would rightfully pay the beneficiary (bank) and the bank would not even have the obligation to use the money to pay the loan - the term policy is NOT tied to the loan. If the parent is named beneficiary, the parent could keep the money or pay the account. Even in a Keyman policy, the payment is made the to business and the business can do anything it wants with the money. The business takes out the policy for its own benefit. A bank can’t take out a policy on a borrower, and if it does require one, that’s a fee on the loan (requiring credit insurance).
Usury is a legal term concerning interest, so an insurance premium can’t be usurious. You may think the rate is too high, but it is not usurious. Insurance premium rates are approved by state insurance commissioners. The premium is the cost of the product, no different than the price of a car or price of tuition. Too high? Sure, but not illegal if approved by the commissioner.
Of course everyone feels terrible that her son died, but what if she had borrowed the money from affluent friends or relatives? Would she still feel that having to repay the debt is unfair?
Let’s differentiate between credit life insurance and a term life insurance policy. Credit life insurance is a horrible product - lenders sell it to increase their profit margins. It is expensive and the value decreases every month as the loan balance is paid off. So - you pay too much and it goes down in value with every loan pymt.
A term life insurance policy will be much less expensive on a healthy young adult. If you co-sign a $50,000 student loan, and you are the beneficiary of the $50,000 term life policy, the death benefit is $50,000. It is not tied to the loan balance - so it does not decrease every month. Disability insurance would be another add-on option.
@mom2collegekids exactly no difference than if she had cosigned for an auto loan, or any other credit vehicle. She would still be on the hook for the loan.
The difference is the car can be sold and the proceeds used to pay off the loan, or, the co-signor might be able to keep the car and use it, depending on how it is titled. Student loans are unique in that you are co-signing for a college education, rather than a tangible, saleable product such as a car.
The term life insurance policy with the co-signor as beneficiary and a disability insurance policy for the student borrower himself would have solved these situations, at least financially.
Death and disability happen. Hard to think of this when dealing with college aged students, but the financial solution exists.
yes, the auto loan was not necessarily a good example, but then again there are all sorts of variables, like how the car was titled. There is no guarantee she wouldve gotten the car. My point was, if you cosign you assume the risks, plain and simple. There are thousands of people left on the hook for various loans, when someone dies. You dont always have something tangible to recoup your losses.
If someone cosigns a loan and the cosigner gets the product or service s/he borrowed the money for, why is it surprising that the lender expects to be repaid? If I borrow to pay for a lavish wedding for one of my kids, the lender wouldn’t be expected to forgive the debt if the couple split up the following month. So it doesn’t seem like it should be much of a surprise that lenders won’t forgive college loans. I don’t see how they could afford it.
There’s been so much written about the unfortunate events that can result from these massive loans that I find it hard to believe that people don’t understand how bad they are or that they won’t be forgiven. So why are they still taking them?
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f someone cosigns a loan and the cosigner gets the product or service s/he borrowed the money for, why is it surprising that the lender expects to be repaid? If I borrow to pay for a lavish wedding for one of my kids, the lender wouldn’t be expected to forgive the debt if the couple split up the following month. So it doesn’t seem like it should be much of a surprise that lenders won’t forgive college loans. I don’t see how they could afford it.
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Good point.
A family friend and her new husband were killed in a car crash very shortly after they were married. Her parents had taken out a loan to pay for the wedding. The parents still had to pay that loan and any other associated CC charges for that event.