college

Is spouse on hook for your student loan?

Don TaylorQuestionDear Dr. Don,
If I were to die, would my wife be responsible for my college loans, and what could Sallie Mae do to help her out?
-- David Debts

AnswerDear David,
I hope this letter finds you well. You're smart to think through the potential claims on your estate if you die, even if you're in perfect health. That way, you can plan for your family's economic future. Along those lines, you and your wife also should have valid wills, and review the beneficiary designations on your retirement and other accounts.

I asked Patricia Nash Christel, spokeswoman for Sallie Mae, about your question. She told me Sallie Mae's private education loan program, called the Smart Option Student Loan, launched in March 2009. It provides automatic loan forgiveness to the borrower and co-signer (if there is one) if a primary borrower dies or becomes permanently disabled. I expect your loans aren't that recent and wouldn't have this protection.

For non-Smart Option private loan programs, the student loan obligation would be part of the probate process and a claim on your estate. If the loan was co-signed, Sallie Mae would work with the co-signer to assess his or her ability to repay or modify the loan terms, if necessary. If your wife is a co-signer on your Sallie Mae student loans, she may need this provision to stay current on the monthly payments if you die.

In contrast, for federally guaranteed student loans, the government guarantee of the loan also provides for loan cancellation in the case of death of the borrower. If a student loan customer dies, the outstanding balance is forgiven, and the estate is not expected to repay the loan.

A term life insurance policy could be just the ticket to pair off against your older Sallie Mae student loan. I'd rather see you in this product than for you to use a credit insurance policy. The premium would be based on your age and health, and it could be very affordable.

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