A student-loan debt insurance program may help advisors and their clients with college-age kids narrow down their list of ideal schools, especially if the student's career goals aren't likely to result in big paychecks.
The Higher Education Loan Protection (HELP) program from Kapnick Insurance is a way for colleges and universities to differentiate themselves as parents and students get more selective about choosing their school in the face of potentially unpayable levels of debt.
Students graduated with an average debt of $30,100 in 2015, according to the Institute for College Access & Success. A June report by Morningstar Credit Ratings found student loan debt was up 5% to $1.26 trillion as of the end of the first quarter of 2016. The delinquency rate for student loans was 11%; loans in deferment or forbearance raised the delinquency rate to 17%.
Kapnick's HELP program is offered to colleges and universities. The schools pay a one-time fee for each incoming freshman class. The program will pay the monthly minimum on loans for students from those schools who can't find jobs after they graduate, or who have to take jobs with salaries below a certain threshold.
Beth Ferguson, client executive of Adrian, Michigan-based Kapnick Insurance, and the lead of the HELP program, says private colleges are the program's main customers as "those tuition bills are usually a little bit more expensive" than public schools.
"What colleges really struggle with is competitive advantages, especially when it comes to private versus public education and the increased cost associated with that," she said.
The College Board found that the average tuition and fees paid for a private college in the 2015-2016 school year was $32,405.
"If a person graduates a university and has a lot of student debt, goes out in the job market and can't find a job, suddenly that's a big burden for that student and for that family," Ferguson said. "How are they going to pay that back if they don't have that job they thought a four-year degree would get them?"
Schools that purchase the coverage set the terms for students to qualify. "If the student graduates within a certain number of years, if they hit a certain GPA milestone and they're actively looking for a job that will be, say, 30 hours a week," Ferguson explained, the school will make loan payments on the student's behalf for as long as his or her salary is below a certain threshold.
