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What Happens to Student Loans When You Die?
A survey by HavenLife found that 73% of student loan borrowers don’t know what happens to their debt if they die. Most young borrowers don’t stop to consider what happens to student loans when you die because it feels far away. However, life can be unexpected. It’s important to know what would happen to your debt if you were to pass away, and how it could affect your family. Keep reading to learn more about what happens to student loans when you die.
Also see: Student loan definitions
Federal student loans
Any loans borrowed from the Department of Education are discharged due to death. This means that they will no longer be collected; your estate or family members will not have to pay back the loans.
Discharge due to death
Federal Direct student loans, FFEL Program loans, and Perkins loans all can be forgiven if the borrower dies. The loans will not be forgiven automatically. A survivor of the borrower has to provide proof of death–for example, a death certificate.
The forgiveness received from discharge due to death used to be taxable. However, The Tax Cuts and Jobs Act of 2017 did away with taxing student loan discharges due to death or disability. This applies to both federal and private loans.
Also see: How to lower your monthly student loan payment
Parent PLUS loans
Parent PLUS loans will be forgiven if the student for whom the loan was borrowed dies. They will also be forgiven if the parent who borrowed the loan dies. Proof of death will have to be submitted.
Don’t miss: All about income-driven income repayment plans
Private student loans
Each private student loan lender sets its own rules regarding the death of a borrower. The rules also vary depending on the state you live in. Some states handle debts and estates differently.
Most of the big private lenders, like Sallie Mae, will discharge loans if the student borrower dies or becomes totally and permanently disabled. Like federal loans, a survivor of the borrower will have to present proof of death or disability.
Co-signers
The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 prohibits a loan from being put into default if the co-signer dies. It also directs private lenders to release co-signers from a student loan if the student borrower dies.
Final thoughts
In most cases, a student loan can be discharged if the borrower dies. However, when it comes to private loans, be sure to review the terms to learn how death could affect that specific loan. Whether you are making preparations for a loved one or looking into your own financial situation, it’s a good idea to be prepared and informed of the rules.
Also see: Our list of the best student loans
