During estate administration, personal representatives have many tasks to perform. They have to secure estate resources. They need to communicate with beneficiaries and other interested parties. They need to attend court hearings and appropriately distribute estate resources.
Typically, that process requires that the personal representative pay the debts and taxes owed by the decedent before fully distributing assets to beneficiaries. Credit card balances, medical debts and numerous other financial obligations take priority over the instructions to distribute assets to beneficiaries in a specific manner.
Larger debts can potentially consume a significant portion of the estate’s resources. For many people, student loans related to college and postgraduate studies can lead to lifetime financial struggles. They could have tens of thousands of dollars in debt when they die. Do personal representatives have to worry about covering the large student loans that a decedent still owed when they died?
The type of loan determines what happens during probate
Student loans are easy to obtain but often difficult to repay. Special bankruptcy rules protect student loan lenders from borrowers defaulting and then discharging large student loans because of temporary financial hardship. Even successful professionals may struggle to repay the totality of their student loans while maintaining their other financial responsibilities.
The type of loan that the decedent acquired to pay for their educational costs determines whether or not the estate has to repay those debts. If the decedent has federal student loans, then postmortem loan forgiveness likely applies. Typically, neither the parents of the deceased college student nor their estate have to pay federal student loans in full after their death.
However, the situation is different when the debt is a private student loan. Lenders that provide private student loans may be able to request repayment through the probate courts. The personal representative may need to liquidate assets to cover the full balance due. Otherwise, they could face personal liability if they mismanage estate resources. Anyone who acted as a cosigner could also be vulnerable to debt collection efforts if the estate does not repay the balance due.
Learning more about the complications that may arise during estate administration can help personal representatives and other interested parties navigate the process successfully. Student loans are often a significant concern during estate administration.