Why you don’t need life insurance to protect against your child’s debt

It’s easy to tell someone to save for their children’s college, but higher education costs more than double since the 1980s

These articles … they are all the same. They open with bereaved parents, moms and dads dealing with the death of a young adult child. There is Angela Smith, whose son Donte Newsome, 25, was murdered in 2008. Or David and Rose Prior, whose son Andrew, 23, died after getting hit by a drunk driver in 2010, shortly after graduating from Northeastern University.

And then you discover these parents have something else in common besides tragedy. They are all fighting the $1tn monster that calls itself the student loan industry.

Never mind the fact that one can’t escape college debts in bankruptcy court. It turns out death doesn’t stop the collections calls either, at least not all of them.

Let me explain.

If a student takes out a loan from the federal government and dies before the bill is paid off in full, the obligation is at an end. However, the private student loan sector does not play by the same rules. If a parent co-signed a loan, discharge is at the discretion of the issuer.

Many of these families might well have co-signed, but they were counting on their future college graduates to pay the bill. As a result, when their child dies, they find themselves in awful financial circumstances. The Priors, for example, had a lender threaten to seize their home and car if they did not make monthly payments.

You would think we would all agree that this is a horrible thing. And sometimes we do. Wells Fargo, Sallie Mae, New York Higher Education Services Corp and Discover Financial now routinely discharge private student loans in the event of death, even if a parent co-signed the paperwork.

But not everyone – either in the financial services sector or in the greater world – believes these families deserve help.

I decided on the subject of this column after reading the comments on a number of articles about parents like Smith and the Priors. Over and over again, I found not reader sympathy for the bereaved moms and dads, but judgment of the harshest sort.

“It’s called a contract for a reason,” wrote one would-be nattering nabob. “What is it with people thinking they are entitled to other people’s money?” Retired? “She should have been working instead of sitting on her but (sic),” noted one commenter.

And then, inevitably, someone writes something like, “Why on earth didn’t these people buy a term life policy on their son?”

Then the other commenters pile on. Of course! Life insurance on our children! How could you not think of such thing? A hundred thousand dollar term life policy on a healthy 18 year old? Shouldn’t cost you more than $10 a month.

Let’s think about this for a minute.

I’m going to begin with the reality of human existence. The odds are pretty good that most parents are not going to think about such things as life insurance when they are – or at least they think they are – investing in their children’s future.

At least one member of Congress agrees. New York Senator Charles Schumer recently introduced “Andrew’s Law,” named for Andrew Prior. It would require private student loans, like their federal cousins, be discharged in the event of the student’s death. This is welcome news, or will be if it ever actually becomes a law.

But the issue goes deeper than that.

It’s easy to tell someone to save money up for their children’s college needs. It’s a lot harder for them to do it in a world where median household income fell by more than 8% between 2007 and 2010. Higher education costs? They’ve more than doubled since the early 1980s. And that’s just an average figure. One estimate has it that tuition at the University of California, Berkeley increased by 2,000% since the 1970s.

But we have a solution for that one. Loans! So people are offered borrowed money so they or their children can afford to attend college. The numbers increase every year. The average student with loan debt now graduates owing more than $26,000.

Yet instead of questioning what is clearly an out of control system, many people seem to think the problem of rising college costs is a personal finance problem, which would be solved if those students just chose less expensive colleges, or more lucrative majors or chose less expensive loans. It’s all your fault, this thinking goes, if you find yourself with too many debts and not enough income after you graduate from college.

It is in the cases of the dead debtors and their grieving parents, however, where you can really see the logical endgame for this way of viewing the world. Instead of offering help, or pondering why any 20-year-old is dying with tens of thousands of dollars of debt, all too many attempt to shame the survivors by pointing out they wouldn’t be in this financial jam if they had just thought to seek out yet another offering from financial services industry.

I don’t really know what to say to this, so I will give the final words in this column to Tamara Draut, the vice president of the progressive think tank Demos and author of Strapped: Why America’s 20- and 30- Somethings Can’t Get Ahead. “We have come to an unfortunate place as a country,” she told me. “The cost of higher education is a major societal problem that demands a public solution – not another financial product.”

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