Student loans when you die
What Happens to Your Private Student Loans If You Die?
There was a rash of news coverage recently about what can happen to private student loans if your cosigner dies. Some lenders were calling in loans, even those that are current, when the cosigner passes away. But with the media spotlight shining on this rare and unfortunate occurrence this will likely self-correct. But what happens to your private student loans if you’re the one who passes away? Does the debt survive you and, if so, who’s left holding the bag?
It depends. If they are listed as your cosigner or it’s a joint debt, then yes, they would still have to pay the loan after your demise. Also, if you live in a community property state. they would also still have to pay your student loans. Only nine states are community property states but you should be aware of the laws in your state and how it applies to debts after the death of one spouse. Some community property states have exemptions for student loans, so this is something else to check into.
Currently, Sallie Mae, Wells Fargo and NYHELPs loans offer death and disability forgiveness options, but this is not the standard for most private student loan issuers. If you’re not sure about your lender’s policy, check the terms and conditions of your loan documents, check your lender website or ask your lender’s customer service department so you know.
Yes. Unless your lender offers a death/disability forgiveness option, upon your death, your cosigner will likely become 100% liable for the remainder of your debt. The majority of students loans (90%) are cosigned, but some lenders offer cosigner discharge after a period of on-time payments. If you’ve achieved cosigner discharge and have the documentation to prove it, your cosigner should be off the hook.
This is another
likely option unless your lender offers the death/disability discharge. Your estate includes property that you own such as cars, land, jewelry and other personal goods. It also includes cash, checking and savings accounts, your home, stocks, bonds, etc. Each state has unique laws that govern estates and property. Jointly held property such as a joint bank account and your home, if you can prove joint ownership, should be exempt from the state and not accessible to creditors.
Are there any tax consequences from student loans after death?
If you have cosigned private student loan debt and pass away then your lender discharges the debt under a death/discharge policy, what may happen is that they will end up with a whopping tax bill. For instance, if you had $50,000 in private student loans that are forgiven and your cosigner’s tax rate averages 25%, they’ll have to pay $12,500 in taxes. That’s still better than $50k in loans, but can cause money woes for your cosigner or joint debtor.
Is there any room for negotiation with the lender after borrower death?
Absolutely. If your lender doesn’t have a death or disability discharge program and you lose your spouse or the person you cosigned for dies, it makes sense to try and negotiate with the lender. They have the latitude to wipe out the loan or negotiate a lower payoff on a case by case basis. It’s always worth a phone call to plead a case if your survivors can’t afford the debt.
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