Estate Planning And Student Loans

Estate Planning With Student Loans

September 09, 2022


With the recent executive action taken by the Biden administration to forgive $10,000 in federal student loans to qualifying individuals, the student loan crisis is back at the forefront of political conversation. In the United States today, there is $1.75 trillion in outstanding student loan debt owed by roughly 45 million borrowers, with the average borrower owing $28,950. These statistics, mixed with the fact that hikes in tuition continue to outpace the growth of wages, create today’s student debt crisis. Since people borrow more for their education than their future careers compensate them, many still make loan payments into their 60s for themselves or their children. But what does this crisis have to do with estate planning? An objective in estate planning is to ensure a decedent’s estate has enough assets to cover their debts, so a burden is not passed to loved ones. Thus, in creating your estate plan, it is essential to recognize student loan obligations and their consequences since 73% of student loan holders say they do not know what would happen to their loans if they died. Identifying and understanding your loan is the first step in considering how your loans may play into your estate plan. For example, do you have federal loans? Private loans? Or both?

Federal Loans

Federal loans have the least amount of effect on your estate plan. The federal government will forgive the following federal loans upon your death:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct Grad PLUS Loans
  • Direct Consolidation Loans

Said differently, when you die, these federal loans die with you. However, the executor of your estate plan or your attorney will still need to provide the government with a death certificate and fill out other paperwork before the government forgives the loans. In addition, with federal Grad PLUS Loans, if the borrower did not have sufficient credit to obtain the loan, they may have had to add a co-signer. If the primary borrower passes before the loan is paid, the co-signer’s obligation to pay is also eliminated.

Parents often take out loans to help pay for their child’s education. These loans, if through the federal government, are known as Parent Plus loans, and a slightly different scenario exists. In Parent Plus loans, only one parent is listed as a borrower, and if that parent passes or the child who was the beneficiary of the loan passes, the loan is forgiven. However, suppose the parent who was not the borrower passes, then the loan remains. For example, Larry and Marlene are on a dual income and have a child, Mary, heading to college. Before taking out a Parent PLUS loan for Mary, Larry and Marlene may want to consider each other’s earnings and life insurance policies in deciding which parent should take the loan out because if the parent who did not take the loan out passes, the loan will still be due and owing even though there is only one parent. 

Private Loans

Millions of Americans have used private loans to pay for their education. What happens to these loans is up to the lender and their policies. Borrowers should ask their lender or refer to their loan agreement to determine what will happen to the loan upon death. They should also remember that if they refinance their federal loans, the loans will become private, and forgiveness upon the borrower’s death is no longer guaranteed.

What Are The Consequences Of Default?

If you default or fall behind on your federal loans, the holders of the federal government loans can garnish your wages (up to 15%) without filing a lawsuit or getting a judgment against you. Further, Social Security can take retirement and disability benefits (up to 15%) to repay student loans if they default. However, if you default on your private student loans, private lenders can garnish wages (up to 25%), but the private lenders must file a suit against you and obtain a court order.


Student loans do not make forming an estate plan impracticable. Instead, it should serve as motivation to sort out and create a plan, so you protect your beneficiaries and leave your financial affairs in order in the event of your passing.

If you need to create or update an estate plan or want to know more about the estate planning process, please contact the SW&L Estate Planning team at 701-297-2890 or email us at:

The information contained in this article and on this website is for informational purposes only. Do not rely on the information on this website as legal advice.