Help Prevent Your Loved Ones From Inheriting Your Student Loan Debt

Updated: Feb 28

In the journey of life, many choose the path of college in an effort to open up new opportunities and experiences. Throughout that journey, student loans may be a part of the price paid in reaching their personal and professional goals.

But are you aware that private student loans aren't discharged upon your death? What that means is that your estate will inherit your private student loan debt if you don't pay it off. An estate consists of property, debt, and assets left by someone on their death, and it becomes the responsibility of the deceased's heirs. Start by speaking with an insurance professional about your options.

According to Protective Insurance, "If you took out private student loans in your own name, are married, and live in a community property state, you should also consider taking out a life insurance policy, and naming your spouse as the beneficiary - as your spouse may be held responsible for your private student loan debts in such states, even if he or she did not co-sign or stand to benefit from any portion of your loans. Your lenders will first try to collect the debt from your estate, a co-signer (if relevant), and then your spouse, if state laws allow. Community property states currently include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska allows its residents to opt-in to a community property agreement, if they so desire.

It should be noted that some community property states do have educational loan exemptions, and some private lenders discharge student loans in the event of the debtor's death. If you're shopping for private student loans, make a point of finding out what your potential private lender's death discharge policies are before you make any key decisions. If you were previously unaware of your lender's policies, you can still safeguard your loved ones from the burden of student loan debt by taking out a term life or permanent* life insurance policy."

According to Business Insider, "In 2019, 69% of college graduates graduated with federal and private student loan debt, according to Student Loan Hero. Federal student loans offer a more generous repayment and forbearance plan. During the coronavirus pandemic, federal student loans were put in forbearance and collections stopped on defaulted loans.

Private student loans are privately owned, typically more expensive, and don't have the same generous repayment or postponement options as federal loans.

Additionally, federal student loans are discharged on the death of the borrower. Unfortunately, if you die, private student loans become part of your estate debt. It's at the discretion of the private lender whether to discharge your debt, according to the Student Loan Borrower Assistance program."

So how does life insurance work? Life insurance is risk management strategy to deal with premature death, loss of income due to illness, or disability. The best life insurance policy for you depends on your budget as well as your financial goals. There are two main types of life insurance policies to choose from: permanent life and term life. By working with your insurance professional, you can determine the amount needed to protect your estate and not leave your loved ones with excess debt.

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