A few months back, USATODAY reported that total student loan debt of approximately 850 billion exceeds total credit card debt of approximately $828 billion in revolving credit, including credit card debt in this country. One of the most important questions a young family has, after asking about their children, is how student loans are dealt with in probate. There are two recent stories that provide some guidance to those with student loans and what steps you need to make to protect your estate against student loan claims.
The first is the story of Christopher Bryski. Mr. Bryski died of a brain injury at the age of 25. His parents co-signed his loan for college. Upon his death, his parents were forced to make monthly loan payments for their son's loans.
Student loan debt is extremely hard to discharge, and the recent federal reformation of student loans did not address situations like Mr. Bryski. Generally, federal subsidized student loans are dismissed though it depends on the loan. (You can learn more here on specific loans. (http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp). But, private loans from companies like Sallie Mae or Wells Fargo do not have to be dismissed if a student passes away or becomes disabled. The cosigners, usually the parents of the borrower, are often required to pay off the loan's balance. Since 2006, two people cannot consolidate their loans together. In the past, if a two people consolidated their loans together and one of them died, then the surviving person was liable for the dying person's student loan.
To rectify this issue, in 2010 Senator Frank Lautenberg sponsored the "Christopher Bryski Student Loan Protection Act," to address co-signor's rights and create more transparency for those rights. The bill stalled and is awaiting sponsorship in the current Congressional session. Thus, currently, private loan debt is handled like any other claim by a creditor on an estate.
The second story is of a woman who died shortly after graduating from college with $45,000 in student loans. The lenders decided to file claims against her estate and many reporters thought they meant her parents. However, it is likely the blogger does not understand probate. The lenders probably filed claims with the personal representative (mostly like a parent in the case of a recently graduated student) during probate to settle their claims and the parents were not personal liable for the loans.
In this case, most of the lenders thought discretion was the better part of valor and decided to dismiss the claims. But, it is the lender's right to make that claims, and a news organization is not always around to give the lender a black eye.
Student loans are creditor's claims against your estate, like any other claim, and it is important to understand who will be liable, or not liable, or if the loan is dismissed upon the borrower's death. I doubt most people who have student loans co-signed with their parents, desire to have their older parents forced to pay off those loans if they pass away.
1 There are other charitable giving strategies, including creating a private or family foundation, donor advised fund or pooled income funds.
2 The "residue" of an estate is the amount remaining after all costs, debts and taxes have been paid and after all monetary and specific bequests have been satisfied. This form of charitable bequest can be especially appropriate if you want other bequests to have priority.
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