Thanks guys! My friend is one of the smartest people I know, yet she's one of the worst with money and money issues, which is so weird. So I thought that she must be misunderstanding something, and xenon's info supports what I thought. Thanks for responding to such a vague question. If there are more details, I may bug you again. Cathy, at this point, I don't think there will be much in terms of an estate to inherit, so it's good to know that life insurance wouldn't be called upon to pay the bills.
This does make me think of another question: I'm trying to get my friend to consider a Roth or a 529--if her daughter were the beneficiary of those, would the same rules apply or would they have to be used to pay back the student loan debt (which is substantial)? I guess the 529 would have to have the kid's name on it since it would be used to pay for her college, right? So would it be safe? What about the Roth with her as the beneficiary? Any ideas?