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Is wife liable for husband's student loans?

Rules for student loans are different than regular loans

By

To Her Credit
To Her Credit, Sally Herigstad
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, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets.
Ask Sally a question, or read her previous answers in the To Her Credit archive
Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

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 (Arizona, California, Louisiana, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska has an opt-in community property law). 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.

See related: Student loans in default: What are your options?, 4 steps to settling privately funded student loans, How to face a student loan debt disaster, Cure your defaulted student loan in six steps, Compare states' community property laws

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"Cashing In"
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Erica Sandberg, Opening Credits columnist Erica Sandberg,
"Opening Credits"

Updated: July 13, 2012



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