I would assume that if they applied for an beneficiary then that person would be entitled to the funds.. Or maybe the next of kin. Or, they just give it to relatives of the deceased. If not anyone, I guess they would bank the money back into the account.

The estate has to pay back the loan. If there is not enough in the estate, then the lender takes a loss.

It depends. Some people take out insurance to cancel the debt. Sometimes there could be collateral. The estate may owe the debt.
The bank can not take all of th assets that belong to the person without legal action.