Ask the Estate Planning Attorney: What Happens to My Student Loans When I Die?

May 23, 2017

The landscape for student loans is on the cusp of changing drastically. With recent changes in New York State potentially offering free tuition to millions of students down the road, the end of student loans — at least in New York — may very well be on the horizon.

Of course, that doesn’t do much for those who are still struggling to pay back the loans they’ve accrued. The reality is that most college graduates are entering the workforce with about $30,000 in debt. Depending on their degrees and schools attended, that number creeps up past $50, $75 or even $100,000. While worrying about paying back your student loan debt, the thought may have crossed your mind — what happens to my student loans when I die?

Although not one of the most obvious parts of estate planning, understanding the role of student loans and what will happen when you pass is important. Here are some important factors to consider:

• For Federal student loans, the loan is automatically canceled and the debt is discharged, so your spouse or children are exempt from responsibility to repay the debt.
• For private student loans, it depends on the loan agreement. In some cases, your family and/or your estate may be responsible for paying back your debt after you pass away.
• Lenders like Sallie Mae, New York HESC and Wells Fargo offer private student loans with death and disability forgiveness policies. This is not the standard for most private student loan lenders.
• With many private student loans, the lender will attempt to collect from the borrower’s estate first. If there is no estate, it will attempt to collect from a cosigner (if applicable). If that comes up empty, companies may sometimes unsuccessfully attempt to collect from a spouse, however, in most situations, the spouse would not be required to repay the loan unless they were a co-signer on same.

So while what happens to your student loans will depend on your type of loan or even the specific bank you used, understanding those specifics and planning accordingly is key. Call our office at 235-5885 with any questions or for a free consultation. Often times, setting up an estate plan to protect you and your family only takes a short meeting.

Related Topics: Estate Planning, General, Retirement Planning

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