How to protect your ability to pay off student loans

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How to protect your ability to pay off student loans

Taking out student loans and getting a graduate degree is often seen as an investment. Sure, you’re getting into debt now, but you’ll be able to pay it off when you get a high-paying job with your new degree.

But what happens when that investment doesn’t work out as planned?

Let’s be honest: sometimes, life throws up roadblocks, and one of the chief ruiners of plans is an unexpected disability. Long-term disabilities, defined as any illness or injury that keeps you out of work for longer than 90 days, can you leave unable to work for years, or permanently unable to work in your chosen profession. No work means no income means no paying off that expensive education.

And by expensive, we mean expensive. Over 40% of the total student loan debt in this country is held by people who completed graduate programs. That’s despite the fact that graduate students accounted for only 14% of the total university student population in 2012. The takeaway? While graduate students have a much higher income potential than their undergraduate brethren, they also leave college with a much higher amount of debt.

Unfortunately, the chances for a roadblock are also high. 1 in 4 people above the age of 20 will experience a disability before they retire, and the average disability lasts about three years. Can you imagine three years without an income while you’re still trying to pay for household expenses, medical bills, and your expensive education?

What causes disabilities? You might think you’re safe at an office job, away from heavy equipment or workplace accidents, but you’re not. 90% of long-term disabilities are caused by illnesses like cancer. Think back to your family’s medical history. How likely is it that you’ll develop cancer, heart disease, diabetes, or other congenital diseases?

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Of course, you can always put off paying your student loans. While complete forgiveness is hard to come by (even if you declare bankruptcy), you can apply for deferment or forbearance. Deferment allows you stop paying your principal temporarily, but if your loan was unsubsidized, your debt will still be collecting interest. Same goes for forbearance - you’ll be allowed to take a break from paying for a few months, but interest will still accumulate.

While deferment and forbearance might be able to help you out in a jam, neither of these are ideal. Instead, we suggest buying a long-term disability insurance policy. What is disability insurance and how does it help? Easy - it will provide you with a monthly benefit that’s usually equivalent to 60% of your monthly income. If you’re buying your own LTD policy, the benefits aren’t taxed, so 60% of your gross income approximately represents your take-home paycheck.

Benefit periods last from a few years to retirement age, depending on the policy. Considering that the average disability lasts for about three years, the majority of people have their income completely covered by their LTD policy.

The best part of LTD policies for professionals? Something called "own occupation." If you have an own occupation rider on your policy, you’re able to define your occupation according to your specific profession. For example, a surgeon with hand tremors would continue to be covered under an own occupation disability insurance rider, even if she took a job as a lecturer at the local college.

We believe that long-term disability insurance is one of the most important types of insurance out there. We also believe that people should buy long-term disability insurance as soon as they’re employed. That way, they can lock in great rates while they’re still healthy (like life insurance, LTD insurance grows more expensive the longer you wait to buy it). Most policies will allow you to purchase a future increase rider, which means that you can increase your coverage as your income grows.

As we said before, higher education is an investment in future potential income. Don’t let that income be lost due to an unexpected disability. Get a quote on long-term disability insurance today.

_Photo: Martyn Hayes