“This is What Happens to Student Loans When You Die”.
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The following is a summary of USA Today article.
It is important that you know the type of student loan (federal or private), the guarantors of the student loan (parents, etc), and the law of the state where you live. This article cannot walk you through each variation of different student loans, but the goal is to provide you with an outline and some ideas to consider in planning your estate (what you leave when you pass).
Federal student loans:
Upon your death the federal student debts in your name are discharged. To receive this discharge, your survivors need to present a certified death certificate to the loan servicer.
Parent PLUS loans:
Parent PLUS borrowers are also eligible for a death discharge since PLUS loans are federal loans. According to Jay Fleischman, a student loan lawyer, “These loans can be discharged when either the parent or the student dies,” he explained. “Discharged federal student loan obligations won’t pass to your estate, and your heirs won’t have to pay them off.” But, the remaining debt canceled is treated as taxable income “forgiveness of debt”.
Private student loans:
Private student loans, including refinanced loans, are more like traditional personal loans, where the lenders might come for your estate when you die. That means your creditors can file a claim against assets you owe upon your death.
Cosigning a student loan:
A co-signer is legally responsible for your debt after you pass away, regardless of the type of loan in question. Consider looking into a cosigner release.
Marriage and student loans:
If you acquired student loan debt during marriage and live in one of the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin — your spouse could be liable for your student loans after you die.
If you do not live in a community property state your spouse probably not liable unless they cosigned the loans.
- Use the National Student Loan Data System (NSLDS) to figure out who your servicers are and contact them to find out their policies.
- In addition, look into cosigner release and a life insurance policy that could help with any outstanding debt, and now a days you can get insurance from even companies online as One Sure Insurance.
- Consider federal loan consolidation or student loan refinancing.
About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. Diane is a retired professor of law teaching bankruptcy for more than 20 years. As a teacher she believes in offering everyone, not just her clients, advice about the Arizona bankruptcy laws. She is also a mentor to hundreds of Arizona attorneys.
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