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How Student Loans Affect Your Estate Planning

How student loans affect your estate planning

Summary: Student loans can be incorporated into a person’s estate plan depending on the type of loan (federal or private) and whether the person is paying their own debts or paying for someone else’s student loans.

More than 41 million people in the U.S. have student loan debt, with the average borrower owing at least $30,000 (Source: Consumer Financial Protection Bureau). With the number of education loans on the rise, more students and recent graduates are beginning to wonder about what might happen in the event they are unable to repay the debt.  It is also important for people to understand how to incorporate these student loan debts into their estate planning, so as not to be a burden for their family and loved ones.

Federal or Private Student Loans

One of the first steps in estate planning with student loans in determining what kind of loans you have – whether they are federal or private.  Direct loans are funds from the federal government.  Federal Family Education Loan Programs are funds from private institutions and insured by the federal government. Private student loans are funds from private lenders without any government involvement.

Generally, the federal government will discharge a person’s federal student loans upon their death.  But, this process is not automatic.  Someone (that person’s family member, attorney, etc.) will have to request loan relief from the lending agency, as well as submit a death certificate and other required paperwork.  Loan forgiveness is guaranteed from federal lenders; however, the forgiveness creates a “discharge of indebtedness income” or “cancellation of debt income” which is then taxed by the IRS.

Private student loans come from a variety of companies, each with their own individual policies about what happens to the student debt if the borrower dies.  Some of these policies are express conditions, others or not.  Private lending companies may forgive debts in case of death, make a claim against the estate for the loan amount, demand the full balance be paid under certain circumstances, or even require the co-signer to be responsible for the loan balance.  As with federal loans, even if the private loan amount is forgiven, the estate is still liable for the tax on the discharge of indebtedness income.

Student Loans and Older Adults

Although many of the student loan borrowers are young adults, the fastest growing age segment of the student loan market is actually adults aged 60 and older.  According to the Consumer Financial Protection Bureau, the number of U.S. residents 60-year-old and over with student loan debt increased from 700,000 in 2005 to 2.8 million in 2015.  For this age group, the average student loan debt has nearly doubled, from $12,100 in 2005 to $23,500 in 2015 (Source: Consumer Financial Protection Bureau).  Researchers say the older generations not only have their own school debts, but they are taking out additional loans to help pay for their children’s or grandchildren’s education.  Carrying this kind of debt can be detrimental, with some of the older borrowers losing a portion of their Social Security benefits if the loan goes into default.  This, in turn, can become a major financial hardship for those who rely on Social Security to help pay for their mortgage, medical, credit card, or other bills.

If a person has student loan debt, it does not make long-term estate planning impossible.  Instead, these student loans may serve as motivation to create a will and sort out these complicated debts.  For more information about estate planning, you can contact the Siedentopf Law via our website at or by calling us at (404) 736 – 6066.

© Sarah Siedentopf and Siedentopf Law, 2018. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Siedentopf Law and with appropriate and specific direction to the original content.


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