With so many good universities in the Chapel Hill, Raleigh, and Durham areas, student loans are a fact of life for many people around here. However, it seems that although people know it will take a while to pay off these loans, they don’t factor in how they’ll affect their estate planning.

If you’re thinking about taking out student loans, whether on your own or co-signing for a loved one, here are a few things to think about:

  1. Federal Loans: Upon death, federal student loans are often forgiven and canceled, depending on the terms of the loan. The creditors do not make a claim against the estate or expect the beneficiaries to inherit the debt. However, there could be changes through the life of the loan and it’s important to keep up with these details so estate plans aren’t impacted.
  2. Private Loans: There are many different private student loans available, and they each come with their own terms. Typically, though, creditors of private loans will make a claim on an estate upon the borrower’s death if the loan hasn’t been paid off. This means that before any beneficiaries receive anything from the estate, the remainder of the loan will be deducted. In some cases, those who inherit the estate also inherit the debt.
  3. Co-signing: Many parents and grandparents want to help the future generation and agree to co-sign, taking on debt close to retirement age. What they may not realize is that borrowers can get part of their social security income taken out to pay off any outstanding student debt. This can radically change a person’s retirement and estate plans.

Any type of debt can affect an estate plan. It’s important to know how each loan’s terms will affect your future goals and the legacy that you want to leave for loved ones. Contact Thornton Law Firm with any questions about estate planning with student loans.