Death and taxes are unavoidable, and for some Americans, this adage holds little value until it is too late. Planning for your death is morbid, but doing so can provide a wide range of benefits for your estate and your loved ones. Our Bethesda estate planning attorneys help clients of all ages and incomes to prepare for their futures by enacting effective and personalized strategies for each individual. JDKatz is proud to be your experienced team of estate lawyers in Maryland, working hard to help everyone meet their financial and personal goals. We also field a lot of questions, as estate law can be very complex!
One question we hear a lot is, “what happens to my student loans after I die?” The outcome for your education loans can play a large role in balancing the debts and assets of your estate. Unfortunately, the rising costs in education and doubling interest rates have made student financing a large burden for many citizens. One project stated that nearly 70 percent of graduates took student funding, and the average amount of that debt was just over $30,000. This can equate to big payments later on.
Today, we’ll go over a few common types of loans offered to college students as well as the likely outcome for each. If you’re in need of help in creating a living trust, structuring your business, tax advice, or any associated legal assistance, be sure to reach out to our law firm today.
Federal Student Loans
While death is a morbid concept, the good news is that any federal assistance you receive during your life will be forgiven once you pass on. This government-funded loan was given to you without cosigners or collateral, making it an even balance if you die before paying your loans off. Your loan expert will expect a death certificate, but once that is in hand, your debt will be discharged. Overall, not the most positive point to celebrate, but helpful nonetheless.
Private Student Loans
A number of students seek out financing from a private institution, giving them more power to decide on their terms before enrolling in class. While you may be happy with the rates and terms, remember that private education loans are viewed similarly to traditional loans by many financial institutions. This means that the outcome of your remaining debt may be discharged and cleared, or it may be assessed to your spouse or offspring by creditors. If you are concerned about the status of your private student loans, be sure to check for any provisions specifying the outcome of the loans upon death. In many cases, the debt will be discharged, but every lender is different!
Parent PLUS Loans
Many students are able to get started in the college world thanks to the support of their parents, signing a loan that actually assigns the debt responsibility to the parent. Keep in mind that PLUS loans are federally sourced, allowing most debts to be discharged upon death. Interestingly, this federal loan can be cleared after the death of either party. If a student were to pass way, their parents would not be expected to pay their loan. Keep in mind, though, that the IRS may send a 1099-C, as your canceled debt may be counted as taxable income. For families with considerable student loan debts, this can result in a large tax payment!
Signing with another individual can provide a number of benefits to those without good credit or credit depth, but this action can result in complications if either the co-signer or borrower were to pass away. Co-signing for a loan means you are taking on the responsibilities in the event that the borrower cannot. In this case, the co-signer would be responsible for the remainder of the payment if the borrower were to die before paying off the loan.
Anyone that signs with a student faces this potential risk. In some cases, one party passing away may equate to defaulting on the loan, making immediate repayments necessary as opposed to stretched out over a decade of monthly installments. It’s important to speak with your lender before making any decisions. In many cases, you can work to implement a cosigner release, but every situation is different.
Spousal responsibilities can also vary based on the state in which you live. Locations such as Idaho and Texas may leave a widowed spouse responsible for student loans, but elsewhere, your marital status does not affect loan repayments. It can help to speak with an estate lawyer for clarification.
Refinanced Student Loans
Some students may find better rates and features by paying off their current debt with a new lender. Again, every company is different, and each lender will provide their own unique governances and regulations. You may have been able to lower your monthly payments, but keep in mind that your debt may not be discharged now upon death. The terms of your loan will be replaced by this new institution, so be sure to do your research and plan ahead for the best outcomes.
Planning for the future and all of its possibilities can help to give you peace of mind in knowing that your assets are secured and your loved ones are cared for. JDKatz is comprised of dedicated estate lawyers in Maryland that have the experience and expertise needed to create cost-effective and beneficial outcomes for your situation. Contact us today to see how we can help!