What Happens to Student Loans After Death?
In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was put into law. Before that, cosigners on private student loans were responsible for the loan balance if the borrower died. Since the bill was passed, cosigners are no longer responsible for private student loan debt if the borrower passes away.
What happens to private student loan debt when you die?
If the loan was issued before 2018 and there is a cosigner, they are responsible for the unpaid balance.
If the loan was issued after 2018 and there is a cosigner, their obligation is released.
If you have no cosigner, it may be forgiven or become part of your estate. It depends on your lender’s death discharge policy.
If the cosigner dies, but the student borrower is alive, many private student loans automatically default, and your loan balance will be due immediately.
If you’re married and live in a community-property state, a surviving spouse may become responsible for their deceased spouse’s private student loan debt if it was acquired during marriage.
What happens to my parent’s private loan debt if they die?
If parents take out personal loans to pay for your college education and pass away, the unpaid balance becomes part of their estate. Probate court decides how the balance is paid. The loan is not discharged.
Federal Student Loan Debt
Fortunately, federal student loans provide death discharge guarantees. If you, the student borrower, die, your survivors can apply for a death discharge to cancel your loans.
What happens to my parent’s PLUS loan debt if they die?
Parent PLUS loans are federal loans. Students will not become responsible for parent PLUS loans.
If the parent borrower dies, the PLUS loan can be discharged. However, if both parents are named borrowers on the loan, then the death of just one parent will not discharge the loan. The surviving parent is still responsible for payment.
If you, the student, die, your parent’s PLUS loan will be discharged.
How to Report a Death to a Student Loan Servicer
A student loan servicer handles billing and answers questions regarding student loan repayment. A family member or another representative must contact the student loan servicer and provide proof of death in the form of a death certificate copy.
Tips to Protect Your Family From Inheriting Student Loan Debt
Student loan debt can be a hefty burden. Even more burdensome for those who inherit this debt unexpectedly.
The following steps can help you protect your loved ones from becoming responsible for your student loan debt.
Read Death Discharge Policies Before Taking Out Loans
Need to take out private student loans? Death discharge policies can vary between lenders. Look for lenders willing to discharge the debt upon the death of the student borrower and cosigner.
Share Your Loan Information With Your Family
Write down your student loan account number and the contact information of your loan servicer. Keep this information with your other important financial documents and share the location with your family. Having this information handy will make things easier for your parents or spouse if you die.
Consider Refinancing
If your current private lender does not have satisfactory discharge policies, consider refinancing with a different private lender. Additionally, financing private student loans may save you money in the long run if the new lender offers a lower interest rate.
Get Life Insurance
One of the best ways to protect loved ones from struggling to pay off your debt if you die is to get life insurance.
Benefits of life insurance include:
Term life insurance is affordable, especially if you’re young.
Life insurance avoids probate, so your beneficiaries get the money much sooner.
Your creditors cannot come after life insurance death benefits paid directly to a beneficiary.
Life insurance death benefits are income tax-free.
Life insurance death benefits can be used however the beneficiaries wish.
Whether you have credit card debt, medical bills, car loans, a mortgage, or private student loans, owning life insurance can financially protect your loved ones when you die. If you die with debt, even if your loved ones don’t inherit it, the balance will come from assets in your estate. Without life insurance, your heirs may end up with nothing except a funeral bill.
If you’re a parent who has cosigned private loans for your child and you pass away, many lenders want the loan paid off immediately. Get life insurance to protect your child’s finances. Your child can use the death benefit to pay off the loan.
If you’re a student with private student loans, consider getting life insurance to protect any cosigners. Alternatively, your cosigners (usually parents) could take life insurance out on you to protect their finances.
If you’re married, life insurance will help your spouse pay off any debt they inherit from you.
