Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
My husband is going for his bachelor's degree late in life
(he is 40 now and just beginning). My question is about student loans. He is
trying to expedite his degree so he can get a raise at work (he works at a
university). He will get some of the tuition free and get some grants, but the
rest is all on us. We will be paying for it either out of pocket or via student
loans.
We are currently in a Chapter 13 bankruptcy and paying that
off, so the thought of more debt terrifies me, especially if he died. I am
disabled. What responsibility would I have for his student loan in the event of
his death? -- Marla
Dear Marla,
Probably none. Your liability for loans (other than student loans) taken
out by your husband depends on whether you live in a community property state (Alaska, Arizona, California, Louisiana, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin).
In non-community property states, as long as you don't co-sign your husband's
loan, you can't be held liable for them. But in community property states, you
are generally responsible for your spouse's debts even if your name is not on
them.
Fortunately, the rules for student loans are different.
If your husband takes out only federal education loans, you
don't have to worry. Mark Kantrowitz, publisher of Fastweb.com and FinAid.org,
says, "Federal education loans are discharged upon death of the borrower."
Whew.
If your husband takes out private student loans, however, it's more
complicated. "Only two private student loans -- the Sallie Mae Smart
Option Loan and the New York HESC NYHELPs loan -- are discharged upon the
borrower's death," says Kantrowitz. "All other private student loans
first attempt to collect from the borrower's estate." If your husband owns
property or cash when he dies, the loan will reduce the amount you receive from
the estate. But at least you won't be making payments on student loans for
years.
If the private lender isn't paid in full by the estate, it
will try to collect from the co-signer, if any. That's a good reason not to
co-sign on your husband's student loans.
If your husband takes out private loans and you live in a
community property state, all is not lost. "Most community property states
have exceptions for debt incurred for education or training, treating it as
separate debt unless the spouse co-signed the loans," says Kantrowitz.
Laws vary from state to state, so it's always a good idea to seek the advice of
a qualified attorney about your particular situation.
I think your husband's going back to finish his bachelor's
degree is a wonderful idea. (And from my vantage point, 40 years of age is
hardly "late in life"!) Don't just look at how much more your husband
will make immediately after graduation. A college degree is not a path to an
instant high salary. Rather, it opens up new opportunities for the rest of his
life. Finishing college is one of the best investments a person can make.
This is also a good time to review your life insurance.
Because you are disabled, your husband should have considerably more life
insurance than you two would need otherwise. Buy enough life insurance to cover
your debts and provide an income for you until retirement. Bankrate.com has a calculator
to help you determine how much life insurance you need. With your husband only
40 years old, term life insurance premiums are quite reasonable, and they're a
small price to pay for your peace of mind.
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: November 12, 2010
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