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Will my child's student loans affect my estate plan?

There may be very few decisions that parents make without considering the impact those decisions might have on their kids. This can certainly be true when it comes to financial and estate planning. 

For instance, many parents today have taken out student loans or co-signed on student loans for their children. While this can be helpful, parents must consider what happens to those loans if they or their child pass away before paying them off. 

Types of student loans

What happens to student loan debt after borrower death depends on the type of loan it is. If it is a federal loan, it will be cleared, or discharged due to death. This would also be the case if you took out a PLUS loan on behalf of your child. If you or your child passes away, borrowers will no longer be liable for repaying these student loans.

A private loan may or may not result in discharge due to death. Private lenders vary in their policies, so you must examine these conditions carefully. In some cases, death of the student or co-signer parent can result in discharge; in other cases, the balance could be due immediately upon death of a co-signer.

Addressing student loans in an estate plan

Whether you are the sole borrower or a co-signer for your child's loan, you would be wise to address student loan obligations when you are creating an estate plan. 

You might consider establishing a trust. Doing so could avoid having your assets from going through probate  and delay or stagger payments to a child, which, in turn, could limit exposure to your child's creditors.

Another option is to set up a life insurance policy or otherwise set aside money in advance. These measures can allow you to pay off student loan debts, even if you pass away.

Start planning now

Millions of people have student loans, many of whom are parents. These debts may or may not go away upon death, which means that failing to address them could result in confusion and unwelcome surprises for those left behind.

Taking the time now to determine what will happen to these loans if you or your child pass away can be crucial in avoiding costly mistakes and oversights.

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