If you are like many people in your 20s and 30s, and even your 40s and beyond, the student loans that you took out for college and graduate school might be the most significant financial aspect of your life. As home ownership rates go down in large metropolitan areas, the amount of money put into schooling has gone way up. And so when younger people think about estate planning issues, they may be more concerned about debt than assets. But that does not mean you should avoid estate planning issues, as what happens to your student loan debt may be the most important factor you need to consider for those you leave behind.

Some But Not All Student Loans Are Forgiven at Death

The good news (inasmuch as there can be a lot of good news when thinking about the particularly uncheery topics of student loans and death) is that federal student loans will be discharged upon your death.

Private student loans, however, are another matter. While some private student loan providers will forgive loans upon death, that does not appear to be the norm for the industry.

Private Student Loans and Your Estate

So what happens to those private student loans? First, the student loan creditors will go to your estate to recover the money still owed on your loans. If the amount of outstanding student loans is more than the value of your estate, this can mean that the entire estate will be dissipated to pay down the loans, and thus whoever you named in your will might not receive anything.

If you live in a community property state like California, and you are married, then your spouse may be liable for the debt if it was taken out during the time you were married.

In addition, co-signers on your private school loans may also be required to pay the remaining portions of your debt, and may also be subject to an acceleration clause in the event of your death.

There are financial strategies to address these types of situations (e.g. purchasing life insurance), and, by working with an experienced estate planning attorney, you can take the necessary steps to avoid leaving family members and beneficiaries with challenging financial scenarios.

Schedule a Consultation with a Pasadena Estate Planning Attorney

Estate planning and probate attorney Christopher B. Johnson, located in Pasadena, California, has years of experience in all aspects of estate planning, and works with clients from all walks of life to create estate planning tools that reflect their needs and those of their beneficiaries. To request an immediate consultation, contact him today at (877) 755-9178.