Student Loans – Did You Know?

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  1. If you have federal student loans, the loans are discharged when the borrower dies.
  1. Federal Parent PLUS loans are are discharged when either the parent or the student dies. One important point to remember:  if the loan was discharged due to the student’s death, parents will receive a 1099-C from the IRS.  It will show the amount of remaining debt that was cancelled and is treated as taxable income.  Parents may be hit with a large tax bill.
  1. Private student loans are trickier. Some – but not all –  private student loan lenders offer a death discharge.
  1. Cosigners of private student loans may face a problem. Your cosigner is legally responsible for your debt after you pass away, regardless of the type of loan in question.  Plus, the full balance will likely be due immediately.
  1. If you are paying your children’s student loans, you may need to file a gift tax return. If you are single and pay more than $14,000/year of your child’s student loan, you need to file a gift tax return.  If you are married and filing jointly and pay more than $28,000/year of your child’s student loan, you need to file a gift tax return.
  1. There are federal alternative repayment options.
  1. There may be relief for your private student loans depending on your loan provider.
  1. Be careful of student debt scams. There are sketchy players out there who are trying to take advantage of desperate debtors.  Attached is a link. https://www.forbes.com/sites/maggiemcgrath/2015/07/29/student-debt-dishonor-roll/#2bf8a198c805
  1. In certain situations, you can have your federal student loans forgiven, canceled or discharged. Attached is a link. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation
  1. You may be able to file bankruptcy for your student loan but the process is difficult. You must show that the payment of the debt “will impose an undue hardship on you and your dependents.”   Courts use different tests to evaluate whether you as a borrower as shown an undue hardship. Attached is a link. http://www.studentloanborrowerassistance.org/bankruptcy

Rosanne Braxton, CFP®
President

 

Rosanne Braxton