The Johnson Firm, P.C.
Start the conversation today. Call
972-364-7176

Student Loans Can Follow You Beyond The Grave

When a person dies with debt, creditors can tap the value of the estate to recoup their money in the probate process, whether for credit card debt, a car loan, a mortgage or a personal loan. But does this also apply to student loan debt? That depends on the source of the debt.

Forgiven loans are taxable

If the debt is from a federal student loan, even if cosigned by a parent, it will be forgiven if the student borrower passes away. However, forgiven cosigned loans are treated as income, and are taxable to the surviving parent. Yes, the parent may escape having to pay the full amount of the debt in the probate process, but the taxes alone can be considerable, and this can create a significant burden that can compound the grieving process.

Private loans

Private loans and some state loans are not so readily forgiven. If a parent co-signed on a student's private loan, they can probably expect to see a bill for the full amount of the loan in probate.

Given that a young person's estate is not likely to be large enough to pay off lingering student loans, parents can find themselves in a financial bind depending on the types of loans their child had taken out.

The importance of pre-planning

While no one wants to contemplate the death of a child, these situations happen, and it's important to understand that student loan debt will show up in the probate process. Whether it shows up as a tax or a total amount due depends on what type of loan the student had taken out, and if a parent had co-signed the loan.

While it's best to consider all aspects of a given loan before taking one out, no one expects to lose a child, and the rules governing debt payback can come as a surprise. These scenarios also illustrate the importance of estate planning for people of any age.

No Comments

Leave a comment
Comment Information
Email Us For a Response

Let us Know How We Can Help

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

  • Richard P. Johnson is Board certified Texas Board of Legal Specialization Estate Planning And Probate
  • Wealth Counsel
  • The College of the State Bar Of Texas Professionalism Through Education
  • Dallas Bar Association
  • Elder Counsel LLC Your Success Our Commitment Excellence in Elder Law and Special Needs
  • NAELA tm National Academy of Elder Law Attorneys, Inc.
  • Marcie Johnson
    was named in
    Best D 2016
  • Richard Johnson
Don't wait to protect what matters to your family. Call 972-364-7176.

The Johnson Firm, P.C.
2400 Lakeside Blvd.
Suite 120
Richardson, TX 75082

Phone: 972-364-7176
Fax: 972-925-9227
Map & Directions