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Do Loans Die When You Die?

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A family in Kansas is dealing with the loss of their daughter, who lost her battle with cancer just after graduating from the University of Kansas. On top of that, they’ve also had to battle the banks about whether her estate or they owe part of the $45,000 in student loans she borrowed to finance her two degrees.

“You don’t know they’ve taken $45,000 in loans because they’re an adult,” John Roark said. “And they have the Privacy Act you can’t; you don’t, you don’t know until you take over their estate and then you’re forced to deal with it.”

The Roarks said since they never co-signed a student loan for Jessica, and they shouldn’t be responsible for the balance. Two out of three loan companies agreed with them. But the third, Wells Fargo, wanted the $6,000 they sent Jessica for school.

Federal loans—including PLUS loans taken out for a student by parents—can be fully discharged upon the death of the student. However, private loans have no such guarantee. Banks make their own policies, and while some forgive the loan balance upon the death of the student, not all do.

Additionally, most co-signed loans aren’t forgiven: the banks have second borrower that is legally obligated to repay the loan—regardless of whether they benefited from the money. Think twice about taking out a student loan that requires a co-signer—not only are there disadvantages debt-wise, but it can also hurt relationships if you end up defaulting. And, it puts your co-signer on the hook if you die.

No one wants to think about their own death, but if you have any debt, it is important to do the following:

  • Keep a master list of all debts, bank accounts and financial obligations in a safe place that the executor of your will or your parents (if you don’t have a will) can access if you were to die—and let them know about it.
  • Be aware of which debts will have to be covered by your estate and which will be forgiven if you die. Discuss contingencies with any co-signers; consider getting a small term life insurance policy that will cover the debt, with the co-signer named as the beneficiary.
  • Work toward paying off debt as quickly as possible.

Will your estate leave your executors baffled—or worse, hounded by creditors?

Read the full article about the Roark’s situation at KCTV5: http://www.kctv5.com/news/26796636/detail.html

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