Student Loan Debt Implications for Older Adults

Many older adults are subject to student loan debt. Some con-sign or guarantee the debt of a student family member without understanding the implications.

The following article was written by Margaret Stockdale, an attorney with my law firm Marshall, Parker and Weber.

Unfortunately, as the cost of higher education rises, the number of individuals with student load debt is increasing exponentially. As these debts increase, many individuals are forced to factor them in to their estate plan. According to the Consumer Finance Protection Bureau, between 2012 and 2017, the number of individuals, over the age of 60, borrowing money for education increased by at least 20 percent. While some of these borrowers were doing so for their own benefit, almost 73% of them were taking out student loans for the education of a child or grandchild.

The first step in incorporating these student loan debts in to your estate plan is to determine what type of loans you have. Student loans are characterized as either federal or private. What happens to your student loans at your death depends on the type of loan. It is important to determine the character of your student loans so that you can reduce the chance of your estate being on the hook for the remaining balance at the time of your death.

For example, if you die with federal student loan debt it will be discharged. Therefore, federal student loan debt will not pass on to anyone else. The federal student loans in your name at the time of your death will be discharged after presenting a certified death certificate to the company.

In addition to the generic federal student loans, there is something known as Parent PLUS Loans. Parent PLUS Loans are signed and taken on by the parents of a student. Therefore, when either the parent or student dies, the loan will be discharged in the same nature as discussed above. However, if the student should pre-decease the parent, he or she may experience a negative consequence of the debt discharge. Following the death of the student, the parent will receive a 1099-C form from the IRS notifying them of the discharge, and that amount will be treated as taxable income.

Private loans, on the other hand, are not as easy to incorporate in to your basic estate plan. Certain loan companies will offer discharge of student loan debt upon the death of the borrower, but others will not. More often than not, private student loan debt will be treated as any other type of debt, and the lender can make a claim against your estate at the time of your death. A caveat to this situation is that if the loan is in the name of the decedent alone, then the family will generally not be considered liable for the amount.

In many situations, a parent or grandparent will become a cosigner on a student’s loans. Unlike a family member who is not involved, a cosigner will be liable to continue paying the student loan debt after the student is deceased, regardless of whether or not the loan is federal or private. Not only will a cosigner be liable for the debt, but upon the death of a cosigner the company can place the loan in default and the entire balance may be due immediately.

           Due to the potential outcomes of signing on as a cosigner, you should carefully consider this decision before moving forward. Defaulting on a student loan can lead to many negative consequences for each individual who cosigned. Defaulting cannot only mean having to work longer or delaying retirement plans, but it can even affect your Social Security benefits. If you default on a federal loan, the government is able to take up to 15% of your social security check, each month, as long as that does not bring the amount below $750. This will occur until the debt is paid off, as there is no statute of limitations on student loan debt.

          While it may seem intimidating, it is important to remember that having student loan debt does not make planning for your future impossible. Rather, it may function as motivation to sort out your estate plan a head of time to make retirement age, and your eventual passing, easier to navigate. For more information on how to deal with your particular student loans and the potential complications, please visit the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/about-us/blog/four-tips-help-older-student-loan-borrowers-navigate-common-problems-their-student-loans/. 

Staying Out of Trouble when you are Power of Attorney, Trustee or Guardian

At various times during my life I have had the responsibility of helping an aging relative pay their bills and handle their investments. I have been authorized to perform this financial caregiving either as a trustee or as an agent acting under a power of attorney. I can testify from personal experience that helping another person with their financial affairs can be very complicated and time-consuming.

Managing someone else’s money is difficult even for an experienced elder law attorney who understands the laws governing powers of attorney and fiduciary duties. The complications and risks mount for family members who don’t have this kind of knowledge and experience.

Millions of Americans find themselves in circumstances that require them to help a loved-one with finances. They may be authorized to act pursuant to a power of attorney signed by the care recipient. The Consumer Financial Protection Bureau (CFPB) reports that about 22 million people age 60 or older have named someone in a power of attorney to make financial decisions for them. Other older adults receive financial caregiving from guardians, representative payees, trustees, joint account owners and others. Sometimes the support is provided by family members acting without any legal authority at all.  Many younger disabled adults also receive financial caregiving help.

These situations are fraught with peril for the person providing the help. The laws are complicated and strict and the helper can be held both financially and criminally liable for mis-steps. 

Where can the average American get information about their duties and responsibilities and how to stay out of trouble when managing someone else’s money? One good starting point is to look at the free guides published by the Consumer Financial Protection Bureau (CFPB)

The guides are for agents under a power of attorney, court-appointed guardians of property, trustees, and government benefit fiduciaries (Social Security representative payees and VA fiduciaries). The guides help financial caregivers by walking them through their duties, providing tips on protecting their loved ones from financial exploitation and scams, and offering helpful resources.

The guides are described as being tailored to the needs of people in four different fiduciary roles as follows:

Power of Attorney

Guides for those who have been named in a power of attorney to make decisions about money and property for someone else. 

View the power of attorney guides here

Trustees

Guides for those who have been named as trustees under revocable living trusts.

View the guides for trustees here

Guardians

Guides for those who have been appointed by a court to be guardians of property or conservators, giving them the duty and the power to make financial decisions on someone’s behalf. 

View the guides for court-appointed guardians here

Government Fiduciaries

Guides for those who have been appointed by a government agency (e.g. Social Security or the VA) to manage another person's income benefits, such as Social Security or Veterans Affairs benefit checks. 

View the guides for government-appointed fiduciaries here

Older adults who are suffering from declining cognitive abilities are at greater risk of falling for scams. The guides contain tips on how to spot financial exploitation and avoid scams.

In addition to reading the guides, it makes sense to talk with an elder law attorney before you start to act as someone’s power of attorney or trustee. The services of an accountant may also be useful in setting up proper accounting and tax procedures.

The CFPB prepared the guides with the assistance of the American Bar Association’s Commission on Law and Aging.