Jack & Jill’s Personal Finance Tragedy
I’m going to tell you two tales. One tale is a sad story with a lingering dark cloud. The second tale is a tale with a silver lining.
Up the Hill
Jack and Jill are young, ambitious millennials. They worked hard, and fetched from high school and college all they could. They graduated from high school in good academic standing, were athletic and had many talents that didn’t go unnoticed by colleges. Jack earned a partial athletic scholarship and went to a great, east coast college to earn a degree in political science. He hoped to one day work in Washington, D.C., setting policy and improving lives.
Jill aspired to be the next Mark Zuckerberg. She was smart and spent much of her time on her mathematics and computer hobbies. At 15, she started her own digital art of algorithms blog and generated a small domestic and international following. She loved what she did and was accepted into a top tier, west coast Poli-Tech school.
Neither Jack nor Jill had problems getting into college. As a matter of fact, they both received several acceptance letters from which to choose. The toughest part of their college choice was based on cost. Both came from middle income families, were smart and resourceful and got help to pay for school. Jack’s parents weren’t poor, but did have three other kids to consider. With the average total cost of a four-year college degree about $125,000 per student, Jack’s parents worried about their retirement. Jill’s parents were divorced. Her mother was a middle-manager and her father was a blue collar worker. Both of Jill’s parents did their best to take care of her, financially and emotionally.
Jack and Jill both had student loans from local banks with their parents as co-signers. When Jack graduated college, he expected his student loans to be $60,000; a far cry from the $100,000 student loans of most of his friends. His scholarship helped. Jill had a small scholarship and a job tutoring other students. Her father created a financial plan when Jill was born and set up a 529 Plan for her. Upon graduation, she expected her student loans to be $39,000.
And Jill Came Tumbling After
Jack and Jill both took off the summer between college graduation and when they were to start their first real jobs. Coincidentally, Jack being from Colorado and Jill from Kansas, both ended up on the same white-water rafting trip on the Colorado River. Both were adventurous and outdoor lovers, they wanted a trip to remember before they embarked on their long and hopeful careers.
The first half of their trip was amazing. The latter half was a disaster. What was supposed to be a level 4 ride turned into a level 5 ride due to seasonal run-off. Jack and Jill’s raft capsized and both were thrown into the river. Jill banged against two-story sized boulders as she was pulled down the river. After being knocked unconscious and pulled to safety, she was air-lifted to a hospital in a coma. Jack was sucked under water by the current and drowned quickly.
Both Jack and Jill’s families were devastated. Jill’s parents rushed to the hospital only to find that Jill succumbed to her injuries and passed away. Both families entered a stage of mourning.
Weeks passed as both families suffered shock and grief. Both Jack and Jill’s parents worried about the medical bills and other costs associated with their children’s deaths. It wasn’t but a few months and both families received a notice in the mail to pay the balance on their respective children’s student loans.
Jill’s mother contacted her ex-husband to have the difficult discussion of how to pay off Jill’s loans. They were taken aback when they realized that, as co-signers on Jill’s student loans, they were responsible to repay the $39,000 balance. Although Jill’s parents weren’t poor, what financial plan they had didn’t prepare them for such an expense. Jill planned to quickly pay off her student loans with the income from her new job. Jill’s parents looked forward to early retirements. Jill’s mother planned to take a part-time job and do volunteer work. Jill’s father planned to reduce his workload and take ad-hoc jobs.
Also devastated to learn of their financial responsibility for Jack’s student loans, Jack’s parents had it slightly easier. Before Jack applied for his student loans, his mother read about their financial liability as co-signers. They urged Jack to take out a life insurance policy to specifically cover his student loans. Jack, who preferred to spend money on beer, paid $12 a month to cover his $75,000 term life insurance policy.
Although Jack’s parents weren’t happy to use the life insurance, it helped pay off Jack’s student loans. Jill’s parent’s started a long and arduous payment plan with their bank to pay off Jill’s student loans. Each of Jill’s parents became responsible for a $175 a month payment. Jill’s mother’s dream of a part-time job and volunteer work couldn’t support this. She delayed retirement for seven years. Jill’s father couldn’t semi-retire and couldn’t fund Jill’s half-sister’s 529 Plan as aggressively has he funded Jill’s. This postponed Jill’s sister’s college education.
A Silver Lining
Fables teach lessons based on the action or inaction taken by its characters. In this fable, Jack and Jill’s family are the “typical family” who convey what increasingly happens to families with increasing student loans. As children and families are required to take on more debt to cover school costs, they take on more risk if their child is not protected in the event of an accident.
If you are in heading to or in college and your parents have co-signed on your student loans, would you want them to be burdened like Jill’s parents if you pass away? If you are a parent who has co-signed on student loans for your child, do you want to end up saddled with a large, unexpected debt?
If you want a silver lining like that of Jack’s parents, then encourage your child to obtain life insurance as one of the first steps in creating their financial plan. Below is a term life insurance chart provided by our friends at Local Life Agents. They point out how low the cost of life insurance for a child is relative to the peace of mind it provides.
Financial Planning Tools
Have you or someone you know lived through this nightmare? What is your advice for co-signing on student loans?
David Auten and John Schneider are The Debt Free Guys. After paying off over $51,000 in credit card debt, they have dedicated themselves to helping people live debt free, have fun and be Money Conscious. They are the authors of four books including 4: The Four Principles of a Debt Free Life available on Amazon now.