, implying that no more payments are necessary. Your loan servicer will want documentation of death from your parent, spouse, or another person you designate. An original or a copy of the death certificate is required.
Do you inherit your parents Student Loan Debt?
Yes, if you have loans from the federal government. This means that your heirs will not be responsible for repaying those school loans. Survivors can file a death discharge request to have a borrower’s federal student loans discharged.
If the student for whom the parent obtained the loan dies, the parent PLUS loan may be discharged.
Additionally, the “death discharge” applies to both parents with a PLUS loan (assuming both took out the loan). A PLUS loan is not cancelled if one of the two obligated parents dies.
If you die, your private student loans will not be discharged administratively. Debts from private loans will be treated in the same way as other debts. That means they’ll be included in your will. The procedure of settling an estate (also known as probate) differs by state. When a borrower or co-borrower dies, some private lenders will use their discretion and agree to discharge loans.
Do you inherit your spouse’s student loan debt?
You may be concerned about how marriage will affect your finances if you’re getting married, especially if your future spouse has large student loan debt. If that’s the case, here are some questions to consider before you tie the knot:
Does Marriage Impact My Payments If I’m on an Income-driven Repayment Plan?
Getting married can alter your payments if you have federal student loans and are enrolled in an income-driven repayment (IDR) plan.
Your payments under an IDR plan are based on a proportion of your discretionary income. If you and your spouse both work, your income may rise, and your payments may rise as well.
If you file your taxes jointly, all IDR plans will calculate your payments based on your combined income. Most of the plans—income-contingent repayment, income-based repayment, and Pay As You Earn (PAYE)—will only use your income to compute your payment amounts if you file your tax returns separately.
Revised Pay As You Earn is the only exception (REPAYE). Even if you file separate returns, REPAYE takes your spouse’s income into account when calculating your taxes.
How Does My Spouse’s Student Loan Debt Affect My Credit?
Unless you co-signed a loan with your spouse, your credit will be unaffected by their debt. Your credit score will be affected if you co-sign a student loan and your spouse defaults on payments.
Even if you didn’t co-sign your partner’s loans, marriage can hinder your ability to obtain other forms of credit. When you apply for credit as a couple, for example, to secure a mortgage, the lender will look at your combined income and debt-to-income (DTI) ratio. You might not be able to get a loan if your DTI is too high.
Is a Spouse Responsible for Student Loans Incurred After Marriage?
Depending on where you live, you may or may not be liable for student loans taken out by your husband after you married. In most places, debt incurred during a marriage is the sole responsibility of the spouse who signed the loan arrangement. If you live in one of the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you are jointly liable for the debt.
Can Married People Jointly Refinance Their Student Loans?
Refinancing your student loans can help you simplify your payments, cut your interest rate, and lower your monthly payments. If you and your spouse both have student loan debt, you might ask if you can refinance and combine your loans to take advantage of your spouse’s better credit or income.
Refinancing for married couples is difficult to come by. Most private refinancing lenders, on the other hand, enable spouses to sign their partner’s loan applications as co-signers. You’ll share liability for the debt as a co-signer. You can help your spouse qualify for a better rate than they could receive on their own if you have good credit and a consistent salary. However, as a co-signer, you will be accountable for the payments if your spouse is unable to make them.
Am I Still Eligible for the Student Loan Interest Tax Deduction?
You can deduct the smaller of the interest you paid on your student loans for the year or $2,500 if you use the student loan interest deduction.
There are, however, income restrictions. If you or your spouse earns a lot of money, your combined wages may be too high to qualify for the student loan interest tax deduction.
If your modified adjusted gross income (MAGI) is between $70,000 and $85,000 ($140,000 and $170,000 if you’re married and file a joint return), the deduction is gradually phased away. If your MAGI is $85,000 or more ($170,000 or more if you file a combined return), you aren’t eligible for the deduction.
Will Getting Married Affect My Financial Aid?
If you intend to return to school, your marital status may have an impact on your financial aid eligibility.
You can still apply for federal Pell Grants and student loans, but your dependent status on the Free Application for Federal Student Aid will change as a result of your marriage (FAFSA).
Even if you live with your parents and rely on them for financial support, you will be deemed independent for federal financial aid reasons if you marry.
As an independent student, the government considers your total household income when determining how much aid you are eligible for. You may not be eligible for financial aid programs meant for low-income students, like as Pell Grants or subsidized loans, if you have a greater income as a couple. Independent students, on the other hand, can benefit from larger student loan borrowing limitations.
Will I Have to Pay My Spouse’s Loans If We Get Divorced?
Divorce is the last thing on your mind as a wedded couple. But, just in case, it’s a good idea to know how debt is handled in both good and bad times.
Loans taken after you married are usually considered marital debt and will be shared fairly in the event of a divorce. If you live in a community property state, your debt will be divided in half, and you’ll be responsible for repaying the loans jointly.
Unless you co-signed the loan, you are usually not responsible for the debt if your husband took out the loans before you married. Even after your divorce is official, if you co-signed your spouse’s loan, you share liability for the debt.
What happens if you never pay your student loans?
- You might be able to take advantage of federal student loan aid programs to help you pay off your debt before it defaults.
- If you don’t pay your student loan within 90 days, it’s considered late, and your credit score will suffer.
- After 270 days, the student loan is considered delinquent and may be turned over to a collection agency for collection.
Who is responsible for student loan debt after death?
Your federal student debts will be discharged if you die, which means you won’t have to make any more payments. Your loan servicer will want documentation of death from your parent, spouse, or another person you designate.
What loans are forgiven at death?
Remember how we talked about using your estate to pay off debt? Your estate may not always be sufficient to pay off your debts. If you don’t have enough assets to cover your debt after you die, here’s what happens:
There is a certain order in which creditors (the people you owe money to) are paid in “insolvent estates” (those where the debt exceeds the value of the assets), which varies by state. The type of debt you have determines whether you go through this process: secured or unsecured.
Secured debt (such as mortgages, auto loans, and other forms of secured debt) is backed by assets that are often sold or repossessed to repay the lender. The lender doesn’t have that protection with unsecured debt (credit cards, personal loans, medical bills, and utilities), thus these expenses often go unpaid if there isn’t enough money to cover them.
However, each type of debt has its own set of laws, so let’s take a look at each one separately.
Medical Bills:
Although this is the most difficult debt to manage, medical costs usually take precedence in the probate procedure in most states. It’s crucial to remember that if you received Medicaid from the age of 55 until your death, the state may come after you for those payments, or there may already be a lien on your home (meaning they’ll get a cut of the sale proceeds). Because medical debt is so complicated and varies depending on where you reside, it’s essential to seek legal advice.
Credit Cards:
If the credit card has a shared account holder, that person is accountable for the payments and any debt owed on the card. (This does not include cardholders who are permitted to use their cards.) The estate is responsible for paying off the card debt if no one else’s name is posted on the account. If the estate doesn’t have enough money to cover the debt, creditors will usually take a loss and write off the debt.
Mortgages:
The remaining mortgage is the responsibility of co-owners or inheritors, but they are just needed to make monthly payments and are not expected to pay off the entire mortgage at once. They can also choose to sell the property in order to avoid foreclosure.
Home Equity Loans:
In contrast to a traditional mortgage, if someone inherits a home with a home equity loan, they may be obliged to repay the amount immediately, which normally necessitates the sale of the home. However, you don’t have to die for a home equity loan to go bad. Borrowing against your property beyond the first mortgage is never a good idea, so save your heirs the trouble and avoid home equity loans altogether.
Car Loans:
Your assets can be used to cover auto debts, just like any other secured debt, but the lender has the right to confiscate the car if there isn’t enough money in the estate. Otherwise, whoever inherits the car can either keep making payments or sell it to pay off the debt.
Student Loans:
When you die, your federal student loans are forgiven. Parent PLUS Loans, which are forgiven if either the parent or the student dies, are included in this category. Private student loans, on the other hand, are not forgiven and must be paid back from the estate of the deceased. However, if there isn’t enough money in the estate to pay off the student loans, they are normally left unpaid.
Can they garnish my husbands wages for my student loans?
For my defaulted private school debts, can creditors garnish my spouse’s wages? I live in the state of California.
Yes, it is correct. To recover the amount of your defaulted student debt, your student loan creditors might garnish your spouse’s salary. You don’t say if the loan was taken out before or after you married. Unfortunately, it makes no difference. Creditors can collect in either case, but for different reasons.
Although the explanation will not make you happy, you will at least understand why things work the way they do.
(Visit Nolo’s Student Loan Debt section to learn about ways to manage student loan debt, read about federal flexible repayment plans, and learn what happens if you default.)
The state of California is known as a community property state. The word “community property” refers to how property rights and financial obligations are divided between couples. Property that each of you had previous to marriage remains your distinct property in a community property state. Debts incurred previous to marriage remain separate debts for each of you. Any assets and obligations acquired by either spouse during the marriage are often assigned to the community, or both spouses, regardless of who brought it in (there are some exceptions, but those would not apply here).
That takes us to the basis for garnishing your spouse’s salary for a pre-marital debt you incurred separately. Your partner doesn’t think so “Your debt will be “inherited.” However, under the notion of community property, you are entitled to half of your spouse’s earnings. As a result, under community property laws, the student loan creditor can seize the portion of your spouse’s salary that belongs to you.
(See Nolo’s article Debt and Marriage: When Do I Owe My Spouse’s Debts?) for further information.
This helps to understand why some couples want to sign a prenuptial agreement. They want to marry, but for personal reasons, they don’t want to split their post-nuptial income equally.
I’m guessing you didn’t have a prenuptial agreement in place. You could consult a divorce attorney about the possibility and legality of a post-nuptial arrangement. A postnuptial agreement could do the same thing as a prenuptial agreement in terms of protecting your spouse’s income. Your spouse’s salary may be protected from your student loan garnishment if you complete a divorce or a formal separation arrangement.
A word of caution: Divorce settlements are not usually upheld in court. A creditor can object that a post-nup should be invalidated as a fraudulent transfer.
Finally, what if the student loan was taken out while the couple was married?
Because the wages are community property, the creditor might still garnish your spouse’s salary. Furthermore, spouses are typically responsible for each other’s debts accrued throughout the marriage. It normally doesn’t matter if your spouse never signed the promissory note for the student loan.
Red Skelton, a comedian who frequently made jokes about marriage, famously quipped, “My wife is wonderful. We always keep our hands together. She shops if I let go.”
Leon Bayer is a bankruptcy lawyer in Los Angeles.
He is a partner with Bayer, Wishman & Leotta, a bankruptcy law company in California.
The views and suggestions expressed in this blog post are solely those of Mr. Bayer and should not be attributed to Nolo.
Mr. Bayer does not become your lawyer by answering a question on this blog.
Do student loans go away after 7 years?
After seven years, student loans are not forgiven. After seven years, there is no program for loan remission or cancellation. If you fail on your student loan debt after more than 7.5 years without making a payment, the debt and missed payments can be deleted off your credit report. Your credit score may improve as a result of this, which is a good thing. However, you will be liable for repaying your loans.
Can you go to jail for not paying student loans?
If you have not paid your federal taxes or child support payments, you may be able to serve time as a result of not paying your bills.
Only if you’ve been charged with and convicted of a tax-related crime, such as submitting a fraudulent tax return or not filing a tax return at all, can you face a prison sentence for not paying or underpaying federal taxes. The federal government will not put you in prison if you submit a return but are unable to pay your taxes.
Failure to pay child support can land you in jail as well. Depending on the circumstances, you could be sentenced to as much as six months or two years in prison for failing to pay child support. Furthermore, state laws may allow a judge to imprison someone for failing to comply with a court order to pay child support.
Can You Go to Jail for Not Paying Student Loan Debt?
Because student loans are considered “civil” obligations, you cannot be imprisoned or sentenced to prison for not repaying them. Credit card debt and medical costs fall under this category, and they are not punishable by arrest or imprisonment. Student loan servicers, on the other hand, will explore a variety of additional options for collecting past-due debt, including turning the debt over to the US Department of Justice, which will endeavor to recover the amount through lawsuit. If you fail to appear in court in the unlikely event that you are sued for student debt, you may be arrested.
Can a Debt Collector Sue Me?
In order to recover money owed to you, a debt collector can launch a lawsuit against you. This legal action is taken by a debt collector in the hopes of getting a judge to issue an order compelling you to pay the debt. If you are given notice that you must appear in court to face the judgment but fail to do so, a judge may order you to be arrested for contempt of court.
So, disobeying a court order about an unpaid debt could result in your detention, but the debt itself cannot.
Can student loans be forgiven after 25 years?
Income-based repayment is similar to income-contingent repayment in that it is based on your income. The monthly payments are both capped at a percentage of your discretionary income, albeit the percentages and definitions of discretionary income differ. Monthly payments under income-based repayment are capped at 15% of your monthly discretionary income, which is the difference between your adjusted gross income (AGI) and 150 percent of the federal poverty threshold for your family size and state of residence. There is no monthly payment minimum. Unlike income-contingent repayment, which is exclusively available through the Direct Loan program, income-based repayment is available through both the Direct Loan and the federally insured student loan programs, with no need for loan consolidation.
The adjusted gross income from the previous tax year is used to calculate income-based repayment. In some cases, the revenue data from the previous year may not accurately reflect your current financial situation. For example, you may have a smaller income this year as a result of a job loss or a wage drop. In this case, you can request an adjustment to your monthly payment by filling out an alternative documentation of income form.
The loan can be repaid over a period of up to 25 years. Any leftover debt will be forgiven after 25 years (forgiven). Because the amount of debt released is classified as taxable income under present law, you will have to pay income taxes on the amount discharged that year 25 years from now. However, for those who want to work in government, the savings can be enormous. The net present value of the tax you will have to pay is little because you will be paying it for a long time.
After ten years of full-time public service employment, a new public service loan forgiveness scheme will forgive the remaining debt. Due to a 2008 IRS judgement, the 10-year forgiveness is tax-free, unlike the 25-year forgiveness. To be eligible for this benefit, the borrower must have completed 120 payments through the Direct Loan program.
The IBR scheme gives a limited subsidized interest benefit in addition to discharging the remaining debt after 25 years (10 years for public service). For the first three years of income-based repayment, the government pays or waives unpaid interest (the difference between your monthly payment and the interest that accrued) on subsidized Stafford loans if your payments don’t cover the interest that accrues.
The IBR program is appropriate for students who want to work in government and debtors who have a lot of debt and a low income. It also helps to have a large family. Borrowers with a temporary income shortfall may be better suited applying for an economic hardship deferral.
The monthly payment under IBR will be zero if the borrower’s income is near or below 150 percent of the poverty level. In effect, IBR will act as an economic hardship deferment for the first three years and then as a forbearance after that.
The prospect of a 25-year payback period may scare students who are not interested in public service jobs. It is, nevertheless, worth serious thought, particularly for students choosing an extended or graduated payback plan. For many low-income borrowers, IBR will likely provide the lowest monthly payment, and it is undoubtedly a viable option to defaulting on the loans.
Because the monthly payment and financial benefits vary depending on the borrower’s family size and income trajectory, it’s preferable to utilize a specialized calculator to assess the benefits on an individual basis.
Because of the requirement to make assumptions about future income and inflation rises, calculating the cost of a loan in the IBR program can be complicated. Finaid offers an Income-Based Repayment Calculator that allows you to compare the IBR program to conventional and extended repayment options. You may evaluate the prices in a variety of scenarios, including starting with a lower pay and then switching to a job with a greater compensation.
The Health Care and Education Reconciliation Act of 2010 reduces the monthly payment under the IBR by a third, from 15% to 10% of discretionary income, and shortens the loan forgiveness period from 25 to 20 years. It is, however, only applicable to new borrowers who take out new loans on or after July 1, 2014. Borrowers with federal loans taken out before that date are not eligible for the new income-based repayment plan. In the new IBR scheme, public service loan forgiveness is still accessible.
Borrowers who qualify for the improved income-based repayment plan can use a special 10% version of the income-based repayment plan calculator.
Borrowers who do not qualify for income-based repayment may choose to seek delay, forbearance, or extended payback for their federal loans if they are experiencing financial hardship. The Department of Education has provided information on Forbearance for students, parents, and all borrowers due to difficulties relating to the Coronovirus. Private student loans have fewer options for debt relief.
Does debt pass on to next of kin?
If you have an outstanding debt that is secured against a specific asset when you die – such as a car – the lender has the right to repossess that asset if the loan repayments stop. Although your relatives are not technically liable for your debt, if the loan is not returned, the estate may lose the asset.
You can avoid leaving your family with a big financial burden after your death by understanding what debts survive after death and how to manage them.
Is credit card debt passed on after death?
Before any assets are handed to your heirs or surviving spouse, any debt you leave behind must be settled. Debts are paid from your estate, which is the total of all of your assets at the time of your death. Your estate’s assets are used by the executor to pay off your outstanding debts. The executor may be someone you named in your will or estate plan, or someone appointed by probate court if you don’t have a will or estate plan.
Your estate is insolvent if you have more obligations than assets. Whether your credit card debt must be paid by family members in this circumstance is determined by a number of variables.
After you die, anyone who is a joint account holder on your credit cards may be held liable for the debt. Joint account holders apply for credit cards as cosigners or co-borrowers, and the credit card provider looks at both applicants’ credit reports before choosing whether or not to extend credit. The credit card amount must be paid in full by both account holders.
These days, just a few big credit card firms provide joint accounts. If you and your deceased spouse shared a credit card account, it’s more than probable that one of you is an authorized user on the other’s account. (If you’re not sure which group you fall into, call your credit card company.)
You obtain a credit card in your name for the account as an authorized user, and you can use it to make purchases and payments. The principal account holder, on the other hand, is ultimately responsible for the credit card amount. If you’re an authorized user on a deceased person’s account, you’re normally not compelled to pay the outstanding sum.
However, there is one important exception: community property states often make spouses liable for each other’s obligations. Even if you were only an authorized user or the credit card was completely in their name, if you live in a community property state, you may be obligated to pay your spouse’s credit card obligations after their death. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, while Alaska allows spouses to declare their property community. Because laws differ from one community property state to the next, if you live in one of these states, find out what your responsibilities are by consulting an attorney who specializes in estate law in your state.
