Your Student Loan Debt
Death and debt are two topics that many people would rather not consider. Unfortunately, it appears that both of these are unavoidable. These days, especially for those pursuing advanced or professional degrees, student loan debt is a reality. College graduates graduate with an average debt of $17,126 and a total national student debt of over $1.4 trillion as of 2017. Debt burdens are not exclusive to students. Parent PLUS loans make up about $81 billion of the total debt.
So what happens to your debt from student loans after you pass away? The various loan types and what happens to the debt in the event that the borrower dies are listed below. You must take your debt into account as you make your financial and estate arrangements, even if it may not be an enjoyable subject to talk about.
Student Loan Types
Federal Student Loans
If the debt is a self-initiated student loan backed by the federal government, it is automatically cancelled upon death and the obligation is discharged by the federal government. No cosigner is required for these loans, and according to the rules of the agreements that regulate them, the debt is forgiven in the event that the student dies.
Private Student Loans
The policies of the individual lender and the loan’s legal paperwork will determine whether a private student loan is discharged following the death of the borrower. Ask the lender if there is any protection against death discharge. Some private lenders offer their borrowers this protection, but not all of them do.
Refinanced Student Loans
The conditions of your old loan are replaced with new terms that you agree to when you sign the refinancing documentation when you refinance your student loan debt. While there may be some financial advantages to refinancing your student loans, your loans will now be governed by the conditions of your new loan and the regulations of your new lender. If you had death discharge protection in your initial loan but it is not there in the subsequent ones, you can lose it.
Parent PLUS Loans
The federal government will erase a parent’s PLUS loan debt when the borrower or the student dies after taking out the loan to assist pay for a child’s education. If the student passes away, the borrower can get a 1099-C form instead, which counts the forgiven debt as taxable income. You should talk to a certified tax expert about your circumstances, as is the case with all tax-related matters.
Cosigned Student Loans
If the primary borrower of a cosigned student loan dies, the debt is still your responsibility. If you pass away as the cosigner, the principal borrower can be obligated to repay the entire loan debt in full. In this circumstance, the principal borrower must review the lending agreement and speak with the lender to determine whether any relief is possible.
Seek Professional Advice
Make important to talk to a knowledgeable estate planning attorney if you or someone you know has student loan debt to ensure that your debt is taken into account when creating your will or trust. Your estate may or may not inherit your debt when you pass away, depending on the sort of student loan you have. When creating your plan, taking your loans into account will help to ensure that your family is totally safeguarded. Contact Hudack Law today at (877) 314-4309 Toll-free, please visit areas of service (open link in a new tab) or hudacklaw.com (open link in a new tab). for a free consultation.