Question:
Dear Steve,
Mom passed away unexpectedly last week, we live in the state of California. My brother went to college in Savanah.
My Mom had 100+k for my brothers school in parent plus loans.
I just found out because my stepdad consigned the loans but has almost not income to pay for them.
It seems the nature of federal loans is they are forgiven with the debt of the debtor or beneficiary.
With the death of the debtor will the consigner be on the hook for the loans, or should it be forgiven?
If the debt is assumed by the consigner, I saw a past article about California cosigners rights and the possibility of bankruptcy?
We appreciate any and all help, it’s looming over the family like a plague and no one wants to handle it.
Cheers,
Brett
Answer:
Dear Brett,
I’m so sorry to hear about the passing of your mother. So sad.
I’m afraid I’ve got some bad news for your stepdad. The Department of Education says, “if parents borrow a PLUS Loan jointly as co-makers or if a couple consolidates a loan jointly, the death or total disability of one of the borrowers does not relieve the other of the repayment responsibility.” – Source
Now this feel grossly unfair but there are two sides to this issue. One is the government made it easy for him to borrow and become an endorser on the loan. The other side is he did agree to guarantee the loans by becoming the endorser.
I would make sure the loan servicer is made aware as soon as possible that your mother has passed. Your stepdad will be contacted and most likely will need to make payment arrangements to avoid having his Social Security garnished for payment.
The payment option that will income dependent for this loan is the Income Contingent Repayment program. But let’s wait till he is contacted and then I can walk you through the additional considerations.
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A great reason why you should always take out life insurance, if you co-sign on a loan. Tragedy strikes and it can stick parents or others with the bill.
Good point.
Question asked.
Parent PLUS loan question answered.