That’s a depressing question, isn’t it? The answer is: it depends. The first thing that it depends on is whether or not your loans are federally generated, state student loans, or private student loans. Private student loans can be called in either when the cosigner passes away, or be passed on to parents or to spouses as part of the marital estate. Some lenders such as Sallie Mae and Wells Fargo do offer death or disability forgiveness options, but they are incredibly rare. Death and disability forgiveness in state loans may or may not be available, such as the case with student loans from New Jersey’s Higher Education Student Assistance Authority, which is still collecting on the loans of a murdered student from his surviving parents. All federal loans are eligible for discharge upon the death of the student for whom the loans were taken out.
If there is no death or disability forgiveness, the debt can be collected either from your estate or from any cosigners. If you die intestate – that means without a will – the debt will fall upon your nearest living relatives. If you are unmarried, it will go to your parents, if you are married, the debt will fall upon your spouse, or if your spouse has predeceased you, it may fall upon your children. Even if the discharge is obtained upon proof of death, the removal of debt can still have financial consequences when it comes to paying the taxes of the estate and filing the deceased’s final taxes with the IRS.
For this reason, I always urge young adults to have a valid last will and testament, and to remove any cosigners to their loans at the earliest available opportunity. Your death could see the loan declared in default, and the full balance be declared due and payable by your surviving cosigner. Even if the full amount is not declared, your cosigner will be held responsible for making the payments that you are no longer here to do. It is not only a financial burden but a searing reminder of loss.
Estate planning and financial planning are not just for people with spouses and kids, homes, investments, and estates. A last will and testament protects the people you love who will still be here after you are gone, and will have to deal with the unpleasant details of settling with insurance companies, creditors, and medical bills. It is tremendously difficult to think about when you are young and healthy, but it is one of the kindest gifts you can give to the people you love.
We offer free consultations at our Fort Lauderdale and West Palm Beach offices, and we can help you get on a sound footing for your future. Preserve your estate, protect your loved ones, and make sure that even if you’re not here that all of your obligations will be taking care of. It can give you real peace of mind to know that there will be no loose ends.
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