Estate planning involves understanding and accounting for different types of debt. You may be surprised to learn that not all debt is treated the same way. When it comes to student loan debt, the source of the loan can be important. Federal student loans are treated differently than private student loans. You may have both types of loans, so here’s what you should know about student loan debt and estate planning in Massachusetts.
Federal Student Loan Debt
Federal student loans can be discharged upon death. The heirs to the estate would simply need to provide a certificate of death to the company that manages the loan. It is important to note that this applies to the primary borrower. A parent’s death would not discharge a child’s student loan, only loans issued to the parent for his/her education.
Private Student Loans
Private student loans are a bit different. They do not discharge upon death. They are treated like any other type of debt and debtors can file a claim against the estate for payment. Additionally, if there are any co-signers to the loan who are still living, those co-signers remain liable for the debt. This is an important factor in cases where the assets in the estate are not sufficient to cover all of the debts.
Some loans contain acceleration clauses. This would require co-signers to pay off the loan in full upon death of the primary borrower. In this case, co-signers would not have the benefit of continuing with the pre-existing payment plan, which often creates financial hardship for co-signers.
Fortunately, Massachusetts is not a community property state. If it were, spouses could remain liable for student loan debt even when not listed as a co-signer on the loan. This is important to keep in mind for residents of other states and in cases where student loan debt was incurred during marriage.
Importance of Student Loan Debt and Estate Planning
This information on student loan debt highlights the importance of creating a proper estate plan. You should always know the condition of your estate in terms of assets and debts. It is often necessary to purchase life insurance policies to ensure that your heirs are not left with a financial burden as a result of your debt. The goal should be to eliminate that burden AND provide financial support to your loved ones after death. Student loan debt and estate planning in Massachusetts is just one of many things that we all should consider.