Do All Student Loans Cancel Upon Death?
As part of the retirement and estate planning process, you have to consider what will happen to your student loan debt when you die. The answer varies based on the type of loan. In addition, your loved ones might be looking at tax implications that will impact your estate.
Federal loans cancel upon death. There are several types of federal loans and not all federal loans are managed by the same company. As part of your estate plan, you should include a list of any loan management companies and the corresponding account numbers. The executor of your estate will then easily notify the loan companies about your passing.
Private student loans do not cancel upon death. Private loans have a legal right to some of your estate in an effort to reclaim some of the lost money. If you carry private student loans, consider taking out a life-insurance policy designated to pay down that loan. With the high cost of education, a private student loan could mean a significant decrease to what you leave your beneficiaries.
Finally, as with all debt forgiveness, your estate might get a tax bill because of the cancelled debt. Discuss this issue with you lawyer to account for any such liens on your final estate value.