If you have significant student loans like many Californians, you may wonder if they will affect your estate planning. You probably have concerns about burdening your family members with loans if you are not around to pay them off.
Those with federal student loans should know that the government discharges them when the borrower dies. Discharge means that the loan is cancelled and the government writes off the debt. Borrowers’ estates are not affected.
If you have a cosigner to your federal student loans, their obligation to repay the government also gets released after the borrower’s death. Your heirs will not have to worry about paying off your federal loans when you are gone.
Unfortunately, private lenders are not as forgiving as the federal government. Most private loans stick around after the borrower passes away.
A lender may first try to collect the loan from the borrower’s estate. If the estate does not have enough money to pay the entire loan off, then the lender looks to other sources. Any cosigners will have to keep making payments on the loan to keep it current. If the cosigner does not pay or does not pay the entire loan, the lender may go after the borrower’s spouse.
In community property states like California, the spouse of a borrower may inherit the borrower’s private student loans. There are a number of exceptions to this general rule. For one, spouses will not inherit a loan that the borrower took out before the marriage. Further, lenders cannot go after the surviving spouse’s separate property for repayment, only community property.
Some private loans have special “death discharge” provisions in the loan documents. These provisions may allow for complete discharge at death (often called “loan forgiveness”). Check your loan documents to see if they include this language.
Most other debts do not disappear after the debtor passes away. These debts become part of the debtor’s estate. The executor or administrator of the estate must pay them off, if possible, with estate assets. If the estate’s debts exceed its liabilities, each creditor will get paid only a portion of what it is due.
Planning your estate? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call Angela’s office at (424) 400-2125.