One common misconception about estate planning is that a person only needs to think about things like wills, trusts, and powers of attorney if he or she is wealthy, sick, or elderly.
If you are among the many with this misapprehension, then you could be leaving yourself and your loved ones vulnerable to costly ramifications. For instance, you might be young with few assets, but if you have student loans, you should consider estate planning measures to address this debt.
What happens to student loan debt?
As this CNBC article explains, the type of loan you have will determine what happens to your debt after your death.
If your loans are all federal student loans and they are in your name alone, then the loan servicer will generally discharge the remaining debt in the event of your death. Similarly, if your parent takes out a Parent PLUS loan, the death of you or your parent will also likely result in discharge.
But you should confirm what happens to your debt after death if you have taken out a private loan, or if you have consolidated your loans with a private lender. Some may discharge the debt after a borrower’s death, but others may not. In fact, if your parent is a co-signer, and he or she passes away, you could be responsible for paying the balance immediately.
Estate planning measures to consider
To help alleviate the post-death burden of student loan debt, borrowers can consider estate planning options including:
- Having a life insurance policy
- Establishing a trust to shield assets from probate
- Leaving assets to a child through a trust to protect them from collection efforts if your child has outstanding student loan debt
Don’t wait to address debt
NerdWallet estimates that roughly 43 million people have federal student loans; about 7.76 percent of student loans are private. In 2019, borrowers owed a whopping $1.6 trillion, with each borrower owing an average of nearly $30,000.
No one wants to be saddled with unexpected payments after a borrower or co-signer’s death, so it is crucial to know what happens to your debt and take steps to address these obligations sooner, rather than later.