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Lawrence D. Gorin
Lawrence D. Gorin, Tax Attorney
Category: Tax
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Experience:  30+ years of legal experience. Special emphasis in divorce & family tax matters.
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I am being garnished for defaulted student loans - long story;

Customer Question

I am being garnished for defaulted student loans - long story; however, my question is.....
If I were to die, I have a life insurance policy for my children. I know that the IRS can garnish my pay check and tax returns in life; however, will they touch any of my life insurance policies in death? Please let me know as I am now quite concerned about this since the garnishment has now begun. Thank you so much for your assistance with this stressful concern!
~Shelley
Submitted: 4 years ago.
Category: Tax
Expert:  Lawrence D. Gorin replied 4 years ago.
ANSWER:
     Under 20 USC § 1087dd(c)(1)(F), the liability for repayment of a federally insured student loan is automatically canceled upon the death of the borrower. Thus, if the borrower dies the debt is discharged and does not carry on to the estate.   (And the life insurance benefits payable to your beneficiaries will not be liable for the unpaid student loans.)

Applicable federal statute:
http://www4.law.cornell.edu/uscode/html/uscode20/usc_sec_20_00001087--dd000-.html

Other websites of interest:
http://www.ed.gov/offices/OSFAP/DCS/loan.cancellation.discharge.html#Death

http://studentaid.ed.gov/PORTALSWebApp/students/english/discharges.jsp

http://colleges.suite101.com/article.cfm/discharge_student_loan_debt

http://themoneycoach1.wordpress.com/2009/05/05/student-loan-cancellation-due-to-death/

http://www.studentloanborrowerassistance.org/loan-cancellation/disability-and-death/

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Lawrence D. Gorin, Tax Attorney
Category: Tax
Satisfied Customers: 1503
Experience: 30+ years of legal experience. Special emphasis in divorce & family tax matters.
Lawrence D. Gorin and 5 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Hi!
Thank you so much for answering my question; just to be SURE....there is NO way that they, the IRS (or anyone), can touch any of my life insurance policies that are left to my children in case of my death??!!
Thank You again....just need to be 100% on this to be at ease to sleep at night as I am sure you can imagine. :0)
~Shelley
Expert:  Lawrence D. Gorin replied 4 years ago.
FURTHER ANSWER:
     Shelley.....
     I fully understand an appreciate you desire to be 100% certain about this, which is why I included the website for the actual and controlling federal statute --- US Code, Title 28 § 1087 dd(c)(1)(F) --- as well as the listing of various websites for you to review.

     In addition to the federal statute, there are also regulatory provisions set forth in the US Code for Federal Regulations (CFR).

     Specifically, 34 CFR § 674.61 (Discharge for death or disability) says:

     (a) Death. An institution MUST discharge the unpaid balance of a borrower's Defense, NDSL, or Perkins loan, including interest, if the borrower dies. The institution MUST discharge the loan on the basis of an original or certified copy of the death certificate. Under exceptional circumstances and on a case-by-case basis, the chief financial officer of the institution may approve a discharge based upon other reliable documentation supporting the discharge request.

Check it out for yourself:
http://law.justia.com/us/cfr/title34/34-3.1.3.1.37.4.40.11.html
http://edocket.access.gpo.gov/cfr_2008/julqtr/34cfr674.61.htm

     Also, 34 CFR § 674.31(a)(3) (Provisions of the promissory note) says:
     The promissory note MUST state that the unpaid principal, interest, collection costs, and either penalty or late charges on the loan are canceled upon the death or permanent and total disability of the borrower.

http://edocket.access.gpo.gov/cfr_2007/julqtr/pdf/34cfr674.31.pdf
http://edocket.access.gpo.gov/cfr_2008/julqtr/34cfr674.31.htm


     So....... Take out a magnifying glass and read the fine print of your student loan promissory note. You will find somewhere in there that is says something to the effect that the unpaid principal, interest, collection costs, and either penalty or late charges on the loan will be canceled upon the death (or permanent and total disability) of the borrower.

Also see:
http://ezinearticles.com/?Death-As-a-Basis-For-Student-Loan-Cancellation&id=2607059

http://www.nolo.com/legal-encyclopedia/article-29791.html


     OK.....Now, having said of all that, please do yourself, and your kids, a big favor and live a long and happy life. I wish you well.

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