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Should my spouse be impacted by my loan refinancing?

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  • Should my spouse be impacted by my loan refinancing?

    I wanted to gather the group's collective wisdom on a student loan question.  Quick background:  physician with ~250k of loans, split between Sallie Mae (3.5%) and DRB (2.87% variable), both solely in my name.  I am applying for a new refinance option with First Republic Bank.  However, due to my loan burden, I am not eligible to refinance on my income alone.  My wife, who has a good income, would have to cosign with me on the loans.  She's a little put off with that idea in case something would happen to me (untimely death).  My belief is that regardless of whether she cosigned or not, all of the three loan companies would get paid back either via my life insurance policy or by them liquidating my retirement accounts if I were to drop dead.  Am I way off on this?  Would cosigning for that loan be a big deal?

    Thanks!

  • #2
    Typically federal loans are discharged in the event of death. Some lenders of private (non-federal) student loans also include a death discharge if the borrower dies. These include Sallie Mae. DRB also forgives all of the amounts owed under the loan if the borrower dies.

    If your wife co-signs the loan with First Republic Bank, unless there is a clause that says otherwise, she would be responsible for the remaining loan balance. As you stated, she could use some of your life insurance death benefit in order to cover this liability.

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    • #3
      If the loans are in your name alone and you die, the legal obligation to pay them off will depend on your state's probate laws.  I am most familiar with Pennsylvania.  In Pa, as long as your life insurance and retirement accounts have a listed beneficiary, eg your wife, the beneficiary would receive the money.  There would be no requirement to use this money to pay off your loans.  Now if you had probatable assets, those may be required to go towards the loan repayment.

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      • #4
        Thanks for the replies and insight LBKCLU and Katietsu.  Refinancing will save ~$25k so I think the "risk" of the refinance is worth the reward.

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        • #5
          Federal loans are discharged on death. DRB also honors the same and discharges your loans on death. You can ask First Republic if they do the same, but no one in your family is on the hook for the other two and neither will touch any policy benefits you have coming to your family.

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