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What Happens To Your Student Loans When You Die?
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No one really wants to think about the unthinkable—death. And no one really wants to think about debt, either.
Sometimes, though, death and debt cross paths. The intersection of death and debt might include student loans and leave you wondering: What happens to my student loans if I die?
The answer to the question “What happens to your student loans when you die?” depends on what type of student loan is involved and who’s ultimately responsible for the debt.
Dying with student debt … what happens next?
“In general, if someone with student loan debt dies, their student loan debt dies with them,” says Robert Farrington, an expert on student loan debt.
However, that’s not always the case. What follows are various scenarios surrounding student loan debt and death, and how those scenarios are handled.
Dying with federal student loan debt
Howard Dvorkin, chairman of consumer website Debt.com, says a borrower’s federal student loan debt is discharged once proof of death, in the form of a death certificate, is submitted to the organization that holds the debt—either a loan servicer or a school. One example of such an organization is Navient, the country’s largest collector of student loan payments.
Federal student loans fall under three umbrellas:
- William D. Ford Federal Direct Loans, provided directly by the U.S. Department of Education. Direct loans come in four varieties: subsidized, unsubsidized, PLUS and consolidation.
- Federal Family Education Loans (FFEL), provided by private institutions but guaranteed by the federal government. The FFEL program ended in 2010, but some borrowers still are paying off FFEL debt.
- Federal Perkins Loans, provided by schools to students who are experiencing financial hardship.
Death and private loans
While federal student loans are forgiven after a borrower dies, private student loans are not.
The National Consumer Law Center says that unless a private lender promised in writing to discharge, or cancel, a student loan following a death, the lender still could cancel the loan but isn’t obligated to do so.
A private lender might try to recover the unpaid debt from the estate of the deceased borrower, says estate-planning attorney Michael Brennan, who practices in Illinois, Minnesota, and Wisconsin.
“If there is no cosigner, the estate of the deceased is responsible for the debt,” Farrington says. “For most borrowers, there will be minimal assets and the debt will go uncollected.”
Among private lenders that offer forgiveness of a student loan following a death are Discover, Sallie Mae, and Wells Fargo. Rules regarding forgiveness differ for each lender.
Death and parent PLUS loans
When a parent takes out a PLUS loan for a child who’s in college and either the parent or child dies, the federal government will forgive the debt, according to the U.S. Department of Education.
However, the child or parent will receive an IRS form called a 1099-C that treats the wiped-out debt as taxable income, according to Dvorkin. It’s important for these individuals to keep in mind that “even though the debt is canceled, they might have a hefty tax bill,” he says.
Student loans with cosigners
If you cosigned for a private student loan and the other cosigner (the main borrower) dies, you’re most likely on the hook to pay off the debt. By cosigning the loan, you’re legally responsible for whatever money is owed, so while the main borrower is no longer with us, the debt still is.
“Cosigning on a loan is where many of the horror stories around loan repayment after death come from,” Brennan says.
One of those potential horror stories: Sometimes, the entire balance of a student loan is due once a cosigner dies, according to Dvorkin. In other words, the lender won’t allow the remaining debt to be paid off over time.
If you’re a cosigner who has been left with student loan debt, consider finding out whether the lender offers any programs that can help ease the financial burden.
In the case of a federal student loan, a cosigner is not held liable for any post-death debt.
Student loans of deceased spouses
The spouse of a deceased borrower isn’t responsible for the debt if the borrower took out a federal student loan. Typically, the same holds true if the spouse didn’t cosign for a private student loan.
However, there are exceptions:
If you live in one of nine “community property” states in the U.S., you’re most likely liable for a deceased spouse’s debt from a private student loan—even if you weren’t a cosigner. Those states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In Alaska, spouses can opt into a community property arrangement.
Under community property laws, a married couple evenly shares both assets and debts that are acquired during their union.
If you live in a non-community-property state, a spouse who cosigned the deceased borrower’s private student loan during the marriage also can be held responsible for the debt. But a private lender will often seek to collect the debt from the deceased borrower’s estate before pursuing other avenues.
Taking preventative measures
Dealing with private student loan debt after the death of a loved one can be messy. Here are some options to help prevent that sort of financial pain.
Buy life insurance
If a borrower is worried about leaving a loved one or a cosigner with student loan debt after he or she dies, a life insurance policy can provide a safeguard by covering the post-death debt. For a college-age borrower, a life insurance policy can cost well under $200 a year—a small price to pay considering that the student loan debt easily could exceed $30,000.
“This is a great safety net,” says Farrington. If you’re a cosigner, you might consider purchasing and paying for the life insurance yourself to give you peace of mind, he adds.
Know your lender’s rules
As mentioned previously, some private lenders will write off a deceased borrower’s student loan debt. That’s not the norm, though. Read the fine print of the loan contract to make sure you’re up to speed on how your private lender handles student loan debt.
Consider a cosigner release
Many private lenders offer the ability to release a cosigner from a deceased borrower’s student loan debt after a certain number of payments are made, usually over the course of two to three years, according to Farrington. Keep in mind that the chief borrower must request the release—and, of course, that request can’t be made after the borrower dies.
Consolidate or refinance the debt
Consolidating or refinancing your student loan debt can produce a lower interest rate or better repayment terms, both of which can lessen the financial load.
Work out a repayment plan
It’s worth finding out whether the lender is willing to set up a plan that’ll make it easier for you, the surviving loved one or cosigner, to repay the loan. There’s no guarantee that the lender will agree to this, but you won’t know unless you ask.