When you’re a parent, it can be incredibly stressful when your child gets sick. You want to do everything you can to help them get better as quickly as possible, no matter how old they are. But what if your sick child is a college graduate with student loans to worry about?
Even if you cannot be there in person to help them get better, you can take steps to help them keep their financial obligations in good standing. You can protect their credit rating and even their financial future.
Start With a Power of Attorney
A durable power of attorney is a document, signed and notarized by both you and your adult child, that allows you to make decisions on their behalf. The terms of the agreement can be set so that your power only takes effect if your child is medically unable to make financial decisions, such as during hospitalization.
If you have a power of attorney, you can ensure your child’s student loan payments continue to be made on time. You can also discuss the account with your child’s loan servicer. If necessary, you can even set up a deferment, forbearance, or consolidation on your child’s student loans.
While it’s a good idea to have a power of attorney in place before it’s needed, you can still get the power to act on your child’s behalf in emergency situations. For this conservatorship, you go before a judge and request that you be placed in charge of their affairs.
To get a conservatorship, you’ll need to have extensive documentation showing that your child is truly unable to manage their own finances due to illness, and that they are also unable to sign a durable power of attorney.
In most cases, a conservator is appointed by a court when someone is unable to handle their affairs and incapacitated to the point that a power of attorney is no longer feasible.
Federal Student Loan Options
Once you have the legal authorization to act on their behalf, you’ll need to understand what kind of student loans your child has. If they’re federal loans, you have several options to keep things on track while your child is sick.
The federal government allows you to apply for an economic hardship deferment, including for cases like a sickness. A deferment allows you to reduce your child’s monthly payment, or even stop making payments temporarily. For some types of loans, your child will even get a grace period after the deferment, during which no payments are required.
Keep in mind, however, that with some federal loans, your child will be responsible for the interest that continues to accrue. That means a larger balance and longer repayment time. With other loans, however, such as subsidized direct loans, no additional interest accrues during deferment.
You can apply for an economic hardship deferment on behalf of your child if you have a power of attorney or conservatorship. For information, visit StudentAid.gov.
Forbearance is somewhat like a deferment. Your child will not need to make any payment during the forbearance period. However, interest will continue to accrue regardless of the type of loan. That interest will be capitalized into the loan, and the balance will increase throughout the term of the forbearance.
If you choose, you can make interest-only payments during the forbearance to keep the balance from rising, but this is not required. You can apply for a general forbearance by submitting an application to your child’s loan servicer. The maximum term is three years for most loans.
Deferments and forbearances are best used for a temporary illness or injury. For a permanent illness or disability, loan forgiveness may be an option.
Your child may be eligible for a total and permanent disability, or TPD, discharge of their loans. To qualify, you’ll need to submit an application package for them showing that your child is permanently disabled.
Your child might qualify if you provide one of the following:
- Documentation from the Veterans Administration showing a service-connected disability of 100% or total unemployability.
- Documentation from the Social Security Administration showing Disability Insurance or Supplemental Security (SSI), and that your child’s next disability review is five to seven years or more from the last determination date.
- Documentation from a physician stating that your child is unable to engage in any substantial gainful activity due to physical or mental impairment that can result in death, has lasted for at least 60 continuous months, or can be expected to last for at least 60 months.
The package is submitted to Nelnet, the TPD discharge processing company, for evaluation. You can also announce your intent to submit a package by contacting Nelnet via phone or email. Any payments due will cease for 120 days to allow time for the application to be processed.
Private Student Loan Options
Private loans, offered through a bank or credit union, don’t have many of the same options as their federal counterparts. Each lender creates their own policies regarding how their loans are discharged or forgiven. Four of the largest private student loan lenders, however, have a discharge process that is similar to the federal one.
Your best option is to contact the specific lender directly and ask to speak to someone about compassionate review. Your child’s private lender may reduce payments, or even forgive the loan depending on the situation. Keep in mind that any forgiven loan balance may be seen by the IRS as taxable income. Consult a tax professional before pursuing loan forgiveness.
A serious injury or illness in your family can be debilitating to finances. Doing the necessary research on StudentAid.gov or contacting private lenders directly is the best way to find the right solution for your child’s situation. With the right paperwork, preparation, and understanding of the options, you can begin helping your child.