Key Takeaways
Parents are not obligated to repay their child's federal student loans, even though their information is required for the Free Application for Federal Student Aid (FAFSA). Parents may be held responsible for student loan debt if they co-signed a private loan or took out a parent PLUS loan.
Student loans in the U.S. are generally either owned by the federal government or financial institutions. The federal government fully guarantees almost all student loans. Some student loans are held by agencies like Sallie Mae or a third-party loan servicing company.
When the time comes to start making payments, only the student is obligated to repay these loans — not the parents.
California is one of the few states that follow community property laws, which contend that all assets and debts acquired by either spouse during the marriage are considered "community property," subject to equal division upon divorce. This includes income, real estate, personal property, and debts.
If you're married and file a joint federal tax return, the laws and regulations for income-driven repayment (IDR) plans generally require payments to be calculated based on the combined income of you and your spouse.
If you live in one of these states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — a student loan is considered community property and, unfortunately, will be charged against the surviving spouse if it was taken out after marriage and before divorce.
If you die, then your federal student loans will be discharged after the required proof of death is submitted.
So if you're struggling to pay back your student loans, you can breathe a sigh of relief knowing your spouse's wages can't be garnished.
Student loans don't constitute income. A dependent's income must be below the $5,050 threshold only if the dependent is a qualifying relative. Since this person is your child, the income requirement might not matter. However, the student loans are considered support to test if the person qualifies as your dependent.
20% of U.S. adults report having paid off student loan debt. The 5-year annual average student loan debt growth rate is 15%. The average student loan debt growth rate outpaces rising tuition costs by 166.9%. In a single year, 31.5% of undergraduate students accepted federal loans.
Loans are privately issued by a bank, credit union, or other lender that participates in the Federal Family Education Loan Programs. Subsidized Loan: The U.S. Government pays the interest on the loan while the student is in school, during the 6-month grace period, and during periods of authorized deferment.
Federal student loans and federal parent loans: These loans are funded by the federal government. Private student loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.
How Student Debt is Assigned in a Divorce. California law (CA Family Code §2641) considers student loan debt to benefit the individual, meaning the person's education will continue to benefit them after the divorce, so the other spouse shouldn't have to continue to pay for that educational debt.
If a borrower dies, their federal student loans are discharged after the required proof of death is submitted. The borrower's family is not responsible for repaying the loans.
Most student loans — about 92.4% — are owned by the government.
Even if student loans are in one spouse's name, debts accrued during marriage are often deemed marital debt and divided equitably. Courts, however, may find that if only one spouse benefited from the loans, it is fair and equitable to require that spouse to solely cover payments.
Federal loans can also affect your bank account directly. Unlike private loans, the government doesn't need to sue you in court before garnishing your bank funds. However, only a portion of your income or savings can be seized, and certain benefits like Social Security are protected.
Although your Social Security benefits are indeed vulnerable to garnishment because of unpaid federal student loans, other types of retirement accounts could be immune. You might contact the manager of your pension to determine whether it was established under the Employee Retirement Income Security Act.
Student loans don't go away after seven years. There is no program for loan forgiveness or cancellation after seven years. But if you recently checked your credit report and wondered, “why did my student loans disappear?” The answer is that you have defaulted student loans.
Medical debt and hospital bills don't simply go away after death. In most states, they take priority in the probate process, meaning they usually are paid first, by selling off assets if need be.
As a result, student loans can't take your house if you make your payments on time. However, if you miss enough student loan payments, your accounts will first move into delinquency status and then into default status. Once you default on student loans, you're at risk of having your house taken to pay them back.
But if you stop making payments and your loans default, a student loan lawsuit could be filed against you. If that happens and the court enters judgment against you, then any funds in your bank account — including your inheritance — could be levied or taken to repay the debt.
When a married couple borrows student loans, the loans are considered to be the joint responsibility of the spouses if they lived in a community property state. When you borrow student loans before a marriage or after legal separation or divorce, they remain the borrower's responsibility.
Your loans' payment history, length of credit, and hard inquiries of private student loans can all have an impact on your credit score. Keep track of all payments and due dates and consistently monitor your credit reports to help you manage your student loans.