Does Your Spouse Have To Pay Off Your Student Loans If You Die?
Student loan debt in America exceeds $1.8 trillion, but most of the 40 million borrowers do not seem to know what would happen to their debt if they died.
Although private loan terms differ from lender to lender according to their policy agreements, holders of federal student loans will get their outstanding debt discharged by the Department of Education if they die.
But what about any surviving spouses and privately held loan debt incurred by the deceased?
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There are three instances in which a surviving spouse may be held liable to pay the remaining debt of the departed borrower. A spouse may be required to repay a deceased partner's student loan if they:
Co-Signed a Partner's Student Loan
In the case of a loan that was co-signed by a spouse, there's a chance that they could be legally responsible for repaying it if the primary borrower dies. If you co-signed one or more of your spouse's private student loans, your legal obligations may remain regardless of marital status. However, it depends on the loan.
For federal student loans, the loan will be discharged because co-signers aren't required. If you were a co-signer for their private student loan, you'll need to contact the lender to see if there is any possibility of getting out of paying the loan.
Combined Debt Into a Joint Spousal Consolidation Loan
Couples take on a lot of shared financial responsibility when they marry. This doesn't normally extend to student loan debt -- except if the couple combines their respective debts into a joint spousal consolidation loan (or one partner co-signs for another's debt, as mentioned earlier).
When you take out a joint spousal consolidation loan, you will be using a private refinancing company, which might result in one half of a marriage or legal partnership take over the other's debt as a sole borrower (and be left on the hook for repaying the remainder of the loan by themselves) should the other half pass away.
Live in a Community Property State
Most states abide by equitable asset distribution laws, however, there are nine states that currently have community property laws, where all assets and debts earned during a marriage are treated as community property -- and are therefor equally owned by both spouses, regardless of who registered, bought or incurred them.
If you live in one of these states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- a student loan is considered community property and, unfortunately, will be charged against the surviving spouse if it was taken out after marriage and before divorce.
Additionally, borrowers that have refinanced a federal loan are in a tricky situation because their loan has changed from a dischargable federal student loan to a potentially dischargable, less-protected private student loan. Again, in the event of a borrower's passing, the company providing the refinanced loan will need to be contacted and the policy reviewed.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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