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Estate Planning and Student Loans

Posted on September 29th, 2022

At Daly Mills Estate Planning, our Mooresville attorneys represent clients of all ages throughout North Carolina, including those who have outstanding student loans. In some cases, the student loans they took out in college and graduate school are the most significant financial aspect of their lives.

This often means they are more concerned about paying their debt than focusing on estate planning. The reality is, your student loans may play a significant role in how you write your Will or develop a Trust, as they may be a factor you need to consider for those you leave behind.

Are All Student Loans Forgiven Upon an Individual’s Death?

Some, but not all, student loans — namely federal student loans — are forgiven at death. However, private student loans may be a different story. Depending on the lender, the student loan creditor may turn to your estate to recover the money you still owe.

If the amount of outstanding student loans is more than the value of your estate, then the lender will take all they can, leaving your beneficiaries with nothing.

Like all loans, private student loan terms can vary greatly from lender to lender, which means there is not a universal rule for how lenders handle student loans in cases of borrowers’ deaths.

Check your loan agreement or lender’s policy documents to understand how you can plan for the balance.

What if I Refinanced My Federal Student Loan?

Federal student loans make up most of the American education debt, accounting for an estimated 92% of all outstanding student loans. The federal student loan portfolio currently totals more than $1.6 trillion, owed by about 43 million borrowers.

Repaying federal student loans can be difficult to manage, as — depending on the amount of the loan — the monthly minimum payment can be hundreds or even thousands of dollars. One strategy borrowers have used to secure a lower interest rate to save money over the term of the loan is refinancing.

However, federal loans become private loans when they are refinanced.

By refinancing, you lose federal loan benefits like access to income-driven repayment plans and guaranteed loan discharge eligibility due to death.

Once you refinance federal loans, your loans follow the new private lender’s policies.

There are financial strategies to address these types of situations and, by working with our skilled Iredell County estate planning attorneys, you can take the necessary steps to avoid leaving family members and beneficiaries with challenging financial scenarios.

Contact Our Skilled Estate Planning Attorneys in Mooresville, North Carolina Today

To learn more about how we can help you plan for all your current and future financial needs, call us at (704) 286-8437 to schedule an initial consultation with our estate planning attorneys in Mooresville, North Carolina today.