If you are like many college-educated people these days, you have some student loan debt. Unfortunately, student loan debt can hang around for years and cost you much more than the original loans’ value to pay back. You may wonder what happens to these loans if you die before you pay them back. There are a few different scenarios depending on whether you had a co-signer or are married.
Unmarried and No Co-Signer
If you have never been married and did not have a co-signer for your loans, the law attributes the loans to just you as an individual. This means that the loans become some of your debts that offset the value of your estate. Your estate executor or representative will gather all your assets and use that money to pay off your creditors, including student loan companies. Any remaining money goes to your heirs. If there is not enough money in your estate to pay all your debts, then each creditor will receive a portion of your assets decided by the probate court, but your heirs will not receive anything.
If you were married when you took out the student loans and you live in California, then those loans may be community property. California includes in community property all debts incurred during the marriage, sometimes including student loans taken out by just one spouse. This depends on whether the marriage benefited from the loans (through payment of living expenses for both spouses, or through increasing the income of the spouse earning the degree, for example).
If you pass away, your spouse may have to continue paying off your student loans. In some cases the loan agreement may provide for the death of the borrower, so you should read through the paperwork. Also note that if you took out student loans before your marriage, they are more likely not community property.
If your parents, your spouse, or another relative co-signed for one of your student loans, they could be stuck paying it off even if you die. Student loan companies want their money back, so they insert provisions in the loan agreements specifying that both the borrower and the co-signer are liable for the full amount of the loan. The same is true if the borrower defaults on loan payments – the lender can go after the co-signer for money.
Planning your estate and worried about unpaid student loans? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.