You might think all your debts will die with you and not burden your family or loved ones -- and in most cases, you’d be right. Upon death, debts can either be deducted from your estate or be forgiven. But if anyone else is associated with that debt, primarily as a cosigner on a loan, that person is now in the lender’s crosshairs.
Does A Dead Person Still Require A College Degree?
In 2009, 27-year-old Lisa Mason died of liver failure, leaving three young children and $100,000 in student loans behind. Her parents had cosigned the loans, which made perfect sense at the time: You expect your college-educated child to pay off a student loan in their lifetime; you don’t expect your child to die before their 30th birthday.
Her parents, who were now serving as legal guardians to her three grandchildren, couldn’t keep up with the payments and in four years the debt grew to $200,000. The story hit the news, briefly bringing the issue to the collective forefront.
The controversy and confusion surrounding student loans has become a sensitive subject. A person can declare bankruptcy and have the majority of their debts discharged. But while a lender can take your car, your house, or your possessions, how can they repossess a college education?
Not All Student Loans Are Created Equal
The Consumer Financial Protection Bureau estimates there’s approximately $1.2 trillion in outstanding student loan debt, with more than 7 million Americans in default on more than $100 billion in balances. As of 2011, Private student loan debt was estimated at $150 billion.
Federal loans offer relief in the form of “Death Discharge.” While it might have an unpleasant sounding name, the government offers what most private lenders don’t: Student loan debt forgiveness for all involved upon death. Getting a federal loan isn’t a guarantee, which is why many must turn to private lenders.
Requiring a cosigner for a private student loan is completely understandable. Lenders need some way of recouping their money if the primary person responsible doesn’t pay. But how important is a college education to a dead person? Shouldn’t the borrower’s death change all the circumstances surrounding the loan? Of course it should, but it doesn’t. As a cosigner, you’re now on the hook regardless of the circumstances.
The Kindness Of Others
It’s easy to become discouraged, frustrated, and cynical about the notion of debt after death. We’ve seen a few negative comments suggesting that people who cosign loans for their children should be responsible for the debt no matter what. Those are the rules! Well, if that’s the case, here’s something much worse for a parent than the thought of future debt: Burying your child.
We’ve also seen people vehemently question exorbitant tuition costs, predatory lenders, whether a college education is even worth it, and why the government isn’t doing anything to protect people. Amidst all the outrage, here are some things you can do if you find yourself in this horrible situation:
Some private lenders do forgive debts if the borrower dies. Make sure this isn’t the case before you spend lots of time and energy worrying about a debt you might not have to pay back. Ideally, you’d want to make sure this is the case for any loan you might cosign. While death shouldn’t be the first thing on your mind when your baby is about to go to college, as a grown adult it’s something you sadly have to consider.
Talk to the lenders and find a sympathetic ear. While it can be a very long and agonizing process, lenders have families too. They’re also numb to every excuse in the book as to why someone can’t pay, so you just need to find the right person who understands your situation and make your case.
Make a big noise. Social media and crowdfunding has changed the world in so many ways. People are always looking for causes to support and if your story gains traction on social media -- and then mainstream media like it did for the Mason’s -- it can be a life-changer. The extensive media coverage led to reduced interest on the loan and a successful GoFundMe campaign.
Buy Life Insurance! No, not for you, though you should have some just in case. Buy a term policy for the borrower for whom you cosigned the loan. If they die before the loan is repaid, the funds can be used to pay off any outstanding debt — and a college-aged person is a lot cheaper to insure than an older adult, possibly only a few thousand a year (a deal when you consider an interest heavy loan from a lender can be a few thousand a month). Speak with an insurance agent to find out how to make this a reality.