King & Wood, P.A.

Is Co-Signer of Student Loans Liable at the Death of the Student?

“When a student loan borrower dies, what happens when, depends on the type of loan.”

If you’re the co-signer of student loans for a grandchild, are the loans callable, if either one of the signees dies unexpectedly?

It depends, says nj.com, in its recent article, “What happens to student loans when borrower dies?” It depends on the types of loans that were originally taken out.

Federal student loans typically don’t need a cosigner, because the loan isn’t dependent on your credit history, except for Direct PLUS loans. Those loans require the endorsement of a cosigner, if you have a weak credit history. If the borrower of a federal student loan dies—regardless of whether there was a cosigner or not—the loan is discharged by the government. The person’s estate is under no obligation to pay the loan. This includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Consolidation Loans and Federal Perkins Loans.

 However, before the government can discharge the loan, the survivors need to present the loan servicer with proof of death. This can be the original death certificate, a certified copy of the death certificate or an accurate and complete photocopy of either of these.

However, this isn’t the case with private loans. In taking out a private loan, a borrower must meet the lender's credit requirements. Sometimes, these requirements will make it necessary to have a cosigner, before being approved for the loan. Therefore, the cosigner is responsible for the debt, if the primary borrower doesn’t pay for any reason. That includes death.

Private student loans (including refinanced loans) are more like traditional personal loans. Private lenders may potentially make a claim on the estate for repayment, when you die. However, if the loans are only in your name, your children or other heirs are not generally considered on the hook to repay them.

With private loans, the death of either signer (primary or cosigner) can cause a default. In that case, the loan is called, and the entire balance becomes due immediately—despite the fact that the surviving signer has never missed a payment. It is rare for a private lender like a bank or credit union to release a cosigner from a debt, upon the death of the primary borrower.

Some lenders, like Sallie Mae's Smart Option Student Loans, offer death and disability forgiveness policies. It’s not the norm and shouldn’t be expected by all lenders. In some cases, it might make sense for parent cosigners to purchase a life insurance policy for their child. Then, in the event of death, parents would get the proceeds to help cover the repayment of cosigned student loans.

Another possible solution with the grandchild here, is to seek removal from the loans if her credit rating has improved, since she first took out the loan. She may be able to refinance the loans in her own name, and/or consolidate them into one monthly payment both for simplicity and a lower rate.

The answer to student loans upon death isn’t straightforward.  It depends on the types of loans, the state where you live, if you have a cosigner and other factors.

Reference: nj.com (September 3, 2018) “What happens to student loans when borrower dies?”

Here's a Checklist of Things College Kids Shouldn’t Leave Home Without

Here's a Checklist of Things College Kids Shouldn’t Leave Home Without

“Here are 10 things your student shouldn't leave for college without.”

College takes a lot of planning for students and their families, and there’s also a lot to worry about. nj.com has a list of 10 things that your student shouldn’t go to college without. The article, “Don't let your kid go to college without these 10 things,” offers these items:

1. Health Insurance Information. Most colleges offer some free health services to students. However, that might not be enough for most healthcare needs, especially for emergencies. Even if the student is on your plan, the coverage may not be enough, if the student goes to college in a different state. The possible need for out-of-network care could get very pricy. Ask your insurance company to calculate how the student’s bills would be covered. You should also take a look at any insurance offered by the school.
2. A Local Providers List. An out-of-state student can get an annual check-up when she’s home for the summer, but some medical needs may not conform to the times when they’re home. Before students get to campus, prepare a list of local care providers who take your insurance.
3. Durable Power of Attorney and Healthcare Proxy. When your student was a minor child, as the parent, you had the right to receive information about his medical care, and you were authorized to make medical decisions on his behalf. Remember that, when your child reaches the age of majority, you lose those rights. That’s why it’s critical for your student to sign durable power of attorney and healthcare proxy documents. These two documents will authorize you to make financial and healthcare decisions for your student, and to get information about his care. Ask an estate planning attorney to create these documents for you. It’s well worth it.
4. A Budget. Aside from how to pay tuition, students need to have a plan for other expenses, like textbooks, pizza, and toothpaste. Create an estimated budget with all possible expenses and examine discretionary costs.
5. A Money Back-Up Plan. You know that even with a great prepared budget, there may be times when Sonny calls home asking for money. A slick way to transfer funds to your student is to have a linked bank account. You can easily transfer money from your account to his.
6. A Credit Card. Credit cards in college take some discipline. Help your student find one credit card with a low available balance. She can use the card for a few regular expenses each month, which are accounted for in your budget. Stress the importance of paying on time, every time. That will help to build a strong credit score. With a solid credit history, after graduation it will help her get an apartment or a car loan.
7. Renter's Insurance. Ask your homeowner’s insurance company about how and if your student’s possessions will be covered by your policy, when she moves into a college dorm. Most policies will give coverage but be sure it’s not limited. If it’s not as comprehensive as you’d like, you should consider purchasing an additional renter’s policy, especially if the student is living in an apartment instead of a dorm.
8. An Emergency List. Create a shared online document that has all the student’s essential information, so you can both easily access it. It should include the student’s bank and credit card account numbers and how to contact the bank, if the cards are lost or stolen. It should also have college contact information, like a student ID number and account information for financial aid and student loans.
9. A Local Buddy. If your kid’s going to college far from home, see if you can find a friendly face for her near the college. It could be a Facebook friend from high school who lives near campus. Maybe your sister’s college roommate has a relative there. It’s reassuring to have another responsible adult as an emergency contact, particularly if the parents are many hours away from campus. Introduce your student to this person, even if it’s only over email, and make sure they have each other’s numbers—just in case. Your student may even get a couple of free home-cooked dinners from it. You should also be sure that you have a phone number for your student's roommates or friends—just in case you urgently need to contact your student, but he is not answering your texts.
10. Absentee Ballot. When your student turns 18, she’s a prospective voter. Make sure your student applies for an absentee ballot and exercises her new right!

Reference: nj.com (August 13, 2018) “Don't let your kid go to college without these 10 things”

Planning for College Means Financial Planning

“The rising cost of higher education is out-pacing inflation and families’ need to plan accordingly.”

Higher education costs are out-pacing inflation by an average of 4%. From 2012 to 2017, tuition has risen by about 9% across the board. With these escalating expenses, some families are having a tough time deciding the best way to pay for college.

The Michigan State University Extension recently posted an article, “Planning and paying for higher education,” that says applying for financial aid is usually the first step people will take to help with the expense.

There are four basic types of aid that can be received:

• work study;
• grants;
• loans (federal and private); and

Aid is requested by completing the Free Application for Federal Student Aid (FAFSA form). This is filed between October and February, prior to the student’s fall and spring classes to see what financial aid he or she is eligible to receive based on need. Student resources, parents’ resources (if the student is considered a dependent) and academic status (full-time, part-time) are factored into the equation.

Once the FAFSA form is filled out, the Expected Family Contribution (EFC) is created. The EFC isn’t the amount of money the family will have to pay for college and it’s not the amount of federal student aid the student will receive. It’s a number used by the school to calculate the amount of federal student aid the student is eligible to receive. The school sends financial aid award letters in the spring, which will help in calculating what will be required to defray the cost of school for a year.

When a student and parent have time, they should look into available college saving tools, such as 529 educational savings plans. Withdrawals from these plans aren’t taxable, the earnings are tax deferred, the contributions are considered gifts and the funds can be transferred between siblings without an effect on American Opportunity, HOPE, and Lifetime Learning Education Tax Credits. A Coverdell Educational Savings Account is another option to assist with college expenses. It’s similar to a Roth IRA, but can only be used for education.

In addition, willing relatives can help through estate planning strategies. A grandparent can gift or pay tuition directly to the university, without any gift tax liability. Talk about these options with an experienced estate planning attorney.

Reference: Michigan State University Extension (May 1, 2017) “Planning and paying for higher education”