Mom is in a personal care home. This is a college loan, she will graduate in May of 2014 and what if my mother in law lives another 5-10 years and the niece can't pay her loan back (which probably will happen). As a POA will I be responsible for that? My mother in law will be out of money within a couple of years, providing she lives that long. Should we try and get the loan stopped?
But the bigger problem will be later on when filly default's on her loan and grannie is sent collection letters as the co-signer on the loan. Gran's SS is pretty well untouchable from collection BUT if the bank account where her SS goes is co-mingled with other funds (like grannies other income or an annuity or savings) then the account is "exposed" to be seized for collection if the debt collector decides to be all hard-ball on collecting. If filly's school is one of those subpar "universities" that are totally for-profit motivated, they are especially ruthless in going after the co-signers. they don't give a rat's ass if she is in a AL or NH, dead or whatever. Now if it is a state-school those usually require some sort of acknowledgement form from the co-signer on the agreement that they understand their responsibility to be accountable on the whole debt if the student defaults.
Did gran get a copy of the agreement? If so, carefully read it. If not, you as her DPOA can contact the school in writing and request a copy of the agreement. They have to give this to you. I'd send the letter certified return mail from the USPO (about $ 8.00). You need to do all this so that later on if grannie has to apply for Medicaid, you don't want filly's loan amount to be viewed as gifting by Medicaid and grannie faces a transfer penalty on the amount.
When you say that she "signed the loan" do you mean she acted as a co-signer for the loan? Or did she loan money out of her own account?
What is the source of MIL's income? Is it only Social Security or include other sources? Is she spending down some assets that will last about another couple of years?
A little more information will help clarify things. But in general, no, being POA does not make you responsible for MIL's debts.
If she is incompetent and it is known or obvious and niece still got her to give her a loan it is elderly abuse. Kind of like stealing candy from a baby, except the baby may need that last piece of candy to live out her life.
If niece is using this for college, it may be a bad spend of money as her career prospects may be ruined by a record for fraud and elderly abuse.
As POA of an incompetent person you have a duty to interfere from her assets being taken and as you stated unlikely to be repaid, prior to being needed,
I do not mean to be harsh, but taking the few last assets from the elderly is just shameful.