Student loans are big business – and big debt. 42 million Americans have student loan debt, and there is over $1.45 trillion in outstanding student loan debt in the United States. 33% of people with student loans are over 40 years old. For many Millennials and Gen Z, a frightening reality is that they could still be paying off their student loans when they hit retirement age. As people start to have families and acquire assets, they begin to think about protecting the future of their families and ask what happens to their student loan debt after they die.
Federal v Private Student Loans
Depending on whether you have a federal student loan or a private student loan, your death will impact what happens to your student loan debt.
• If you have a federal student loan, the debt will generally be forgiven when the borrower dies; although there may still be a tax liability.
• If you have a private student loan, while some lenders forgive the loan when the borrower dies, most lenders will expect the debt to be paid from your estate’s assets.
There are steps you can take to protect your loved ones and their inheritance in case you die with student loan debt:
1. Life Insurance Policy
A life insurance policy in the amount of the student loan debt still owed would provide funds to pay back the balance owed on your student debt and keep your estate solvent.
2. Beneficiary Designations
If you designate a beneficiary for your assets such as bank accounts and retirement plans, those assets will not be subject to probate.
3. Put Your Assets in a Trust
A trust can protect your assets that are included in the trust from going to anyone who is not named in the trust, and those assets cannot be used to pay your creditors.
Protect the future of your loved ones and the impact that your student loan debt could have on their financial future by using estate planning strategies that protect your assets.
If you have specific concerns about your student loan debt, an experienced estate planning lawyer can advise you throughout the process. To talk to a probate, trust and estates attorney in Chicago or Lombard about how to make and store your will, contact the Estate & Probate Legal Group at (630) 800-069.