An article on App.com’s “In the Money” Section details a story about a couple who was left with major debt when their son died in a car accident at age 25. For the full article go to: http://blogs.app.com/inthemoney/2010/08/03/barnegat-couple-left-with-sons-college-loans-get-relief/
I mentioned this now since many parents are completing loan applications to send their children to college. The cost of college has skyrocketed over the last decade forcing many parents to take out loans in addition to their children’s Federal and State loans. If you do this, you need to make sure you know who is responsible for this debt if your child dies.
The article talks about a Barnegat, NJ couple who were stuck with loans that amounted to over $80,000 when their son died in a car accident.
After their son’s death they received a bill from the New Jersey Higher Education Student Assistance Authority (NJHESSA) for $81,000. This bill amounts to $685 a month since Ralph Grande so-signed the loan guaranteeing the payments if his son did not make them. A spokeswoman for the authority said “Although we are sympathetic to the difficult circumstances involved, under terms of the bond indentures that finance the NJ Class loan program, HESSA is not permitted to forgive student loans as a result of the death of a borrower.”
When financing college tuition many parents take out parent loans or co-sign state and private loans. This puts a responsibility on the parent to repay the loan if the child does not pay it no matter the reasons.
Some State and Federal programs will forgive loans that are co-signed in the event of the borrower’s death; however I would make sure by calling the agency or bank that provided the loan.
There is another strategy parents can use to avoid this debt in the event their son or daughter dies. Parents should consider taking out a life insurance policy on their child to cover the debt.
The cost of a $100,000 twenty year term policy for a 24 year old male who is in good health and a nonsmoker is under $150 a year.
By having a $100,000 life insurance policy on your son or daughter you would receive $100,000 upon their death to pay off those loans. By using life insurance to pay off the loans your retirement fund or other assets are not jeopardized.
Contact us today at 215-885-2200 for a FREE QUOTE! Don’t let the death of a child derail your retirement.
On a positive note, the Grande’s debt was reduced to $41,000 by the lender. In a follow up article (In The Money August 3, 2010) Ralph Grande said “It is $41,000. Joan and I are going to have to cash in retirement accounts and obviously work a lot longer, but at least the burden of $81,000 will be reduced.”
