What Happens to Student Loans in Probate Court?

Student loans and student loan repayment is a hot political topic nowadays. But there’s one thing that everybody should agree on: it’s hard to pay back student loans after you pass away.

What happens when someone passes away, and that person still has or owes student loans?

Federal Loans

The answer to this question largely depends on what kind of student loans that you have.

Federal student loans, which make up the bulk of student loans, are discharged on the death of the borrower. The surviving family members do not have to pay back the loans. The survivors do have to provide proof of death to the loan servicer but the estate will not have to pay back the student loans, the way it might have to do with other, non-student loans.

There is also a kind of loan called a Parent Plus loan, which obligates both the student/child, as well as the parent. Those, also, are discharged upon the death of either the parent or the student borrower.

Private Loans

But things are more complex with private loans-loans made by private, non-government companies, like banks. Private student loans used to be more common than they are today, but many people still have them, and many borrowers who may have taken out loans many years ago, may have private loans.

Being private companies, these companies aren’t bound by the federal laws, which discharge the loan on the death of the borrower. Each lender may have their own policies, and if the loan doesn’t provide for discharge on death, it is treated as a debt that may have to be paid out of the assets of the deceased’s estate—assuming the lender makes a timely creditor’s claim in probate court.

Even if the estate has to pay all or part of a private (that is, non-government) student loan, the survivors personally, will never have to pay off the student loans. That means that if the estate doesn’t have the funds to pay off the balance of the loan, the loan simply won’t be paid—the lender can’t go after children and parents and husbands or wives, for repayment.

What Can You Do Now?

If you have student loans, the time is now to ascertain whether they are federal or private.

If they are private, you may want to see what the policy is for repayment on death. If you do have a significant private loan, and you have concern about it depleting assets in your estate, you may want to consider transfers of property that avoid probate—for example, putting assets in trusts, or in payable on death accounts.

Depending on your age you can also take out life insurance, and have the life insurance take care of the private loan.

Let us help you manage debt in your estate plan, and in probate court. Call the West Palm Beach probate lawyers at The Law Offices of Larry E. Bray today for help if you have a probate court challenge or problem.

Source:

studentaid.gov/manage-loans/forgiveness-cancellation/death