What Happens to Student Loans When You Die?

Taking out student loans means you agree to repay them. But you might have questions about what happens to student loans when you die. Specifically, you might wonder whether your spouse or family members will be obligated to repay them on your behalf.

Federal student loans are discharged when a borrower passes away. If you have private student loans, the terms of the loan contract determine how your loans are handled upon death.

If you’re concerned about leaving a loved one with your debt, here’s a closer look at what can happen to student loans if you pass away.

In this guide:

• What happens to federal student loans when you die?
• What happens to private student loans when you die?
• What happens to student loans when you die and are married?
• How to protect your family in the event of your death

What happens to federal student loans when you die?

Federal student loans are discharged when you die, and acceptable proof of death is submitted to the loan servicer. Student loan discharge means you no longer have any obligation to repay the loan.

To have federal student loans discharged due to the borrower’s death, someone must present appropriate documentation to the loan servicer. The loan servicer may specify what’s needed, and the list can include:

• An original death certificate
• A certified copy of the death certificate
• An accurate or complete photocopy of either of these documents

The Department of Education doesn’t offer a detailed overview of how to apply for loan discharge. Contact the loan servicer to learn how to have someone’s federal student loans discharged after they die. For Perkins Loans, contact the school that made the loan or the school’s designated loan servicer.

Previously, federal student loan debt discharged due to death was taxable income. The 2017 Tax Cuts and Jobs Act changed the tax code to allow for tax-free discharges of federal student loans when the borrower dies. This provision expires at the end of 2025, and there is no guarantee that Congress will extend it.

What happens to Parent PLUS loans when you or your parent die?

The federal Parent PLUS loan program allows parents to take out loans on behalf of eligible undergraduate students. Parent PLUS loans are eligible for discharge due to the death of the student or the parent.

The Department of Education does not pass the responsibility for paying those loans on to students. Submit acceptable proof of death to the loan servicer to apply for discharge of those loans.

Parent PLUS loans are protected by the Tax Cuts and Jobs Act provision like other federal student loans. That means your parents will not owe taxes on loans they take out on your behalf if you pass away, nor will you owe taxes on discharged loans if they die.

How to notify a federal loan servicer of a borrower’s death

When a federal student loan borrower dies, the student loan servicer must be notified to apply for a discharge in case of death. Suppose you’re seeking discharge of loans on behalf of someone else and don’t know who services the loan. In that case, there are a few ways to get this information:

• Check one of their previous loan statements if you have access to them
• Contact the school that disbursed their financial aid
• Reach out to loan servicers individually. The Department of Education maintains a list of federal loan servicers with their contact information.

Tell the loan servicer that the borrower has died and ask how to get the loans discharged. Keep records of each conversation and note when you send in the required documents in case you encounter an issue with the discharge process later.

What happens to private student loans when you die?

Whether private student loans are discharged when a borrower dies can depend on whose name is on the loan. If you took out the loan without a cosigner, the lender might discharge the outstanding amount when you pass away. However, lenders are not required to offer automatic discharge.

If your loan has a cosigner, ask your lender what happens to private student loans when you die. A cosigner is legally responsible for loans taken out with someone else, even if they’re not the ones making payments on the debt.

When loans are not discharged at death, the lender may seek repayment from assets in your estate. If your private loans are discharged upon death, your estate will not have to pay taxes on the balance, as federal and private student loans are covered under the 2017 Tax Cuts and Jobs Act.

Here’s how some popular private student loan lenders handle discharge due to death.

What happens to private parent student loans when you or a parent dies?

The lender’s policies determine whether private parent student loans can be discharged if the parent or the student dies. Earnest, for example, will consider discharging loans if the parent or the student passes away. Discover and Sallie Mae offer discharge due to death on a case-by-case basis.

If your lender’s website doesn’t specify what happens to loans taken out by a parent, ask the lender if a discharge is available and how it works.

What happens to cosigned private student loans when you die?

For many borrowers, a cosigner is necessary to get approved for private student loans and to qualify for the most favorable interest rates. Whether your cosigner will be left with your loans if you die can depend on when they were taken out.

The 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act was passed to enhance consumer protections while easing some of the regulations instituted by the Dodd-Frank Act. It included two major changes to private student loans. Under the act, private lenders:

• Cannot declare a private student loan to be in default or otherwise accelerate the debt due to the death of a cosigner
• Must release cosigners from an obligation to repay loans if the borrower dies

These rules apply to private student loans taken out 180 days after the act was finalized in Congress. So if you took out private student loans with a cosigner after November 20, 2018, your cosigner would not be on the hook for those loans if you pass away.

If you took out private loans before that date, reach out to your lender directly to ask how your cosigner may be affected if you die. If a cosigner is still required to pay, they could risk credit score damage or a creditor lawsuit if they fail to meet that obligation.

How to notify a private loan provider of a borrower’s death

Contact the lender to discuss your options for discharge due to the borrower’s death. The process can vary by lender. Similar to the discharge of federal loans, you will need to provide a death certificate or other documentation.

You might be able to upload the required documentation online or be asked to mail it in.

What happens to student loans when you die and are married?

Federal student loans are discharged after submitting appropriate documentation upon death, regardless of marital status. If your spouse cosigned your private loans, their obligation to repay them after your death would be determined by the lender and where you live.

You might be responsible for repaying a deceased spouse’s private student loans if you live in a community property state—even if you didn’t cosign. In community property states, debts taken out after the marriage are owed by both spouses, even if only one spouse is listed as the borrower.

If the debts were taken out before the marriage by one spouse, then the surviving spouse may have no responsibility for them, even if they live in a community property state. Whether those debts get attached to the deceased person’s estate or forgiven depends on the lender.

How to protect your family in the event of your death

If you’re concerned about leaving your loved ones with your student loan debt, there are a few things you can do to protect them.

• Keep good records. Create a file folder to store your loan paperwork with your lender’s contact information to make it easier for your survivors to initiate the discharge process if something happens to you.
• Understand your lender’s policy. If you can’t find the policy online, call or email the lender with your questions. If your lender doesn’t offer discharge at death, you can weigh the benefits of refinancing to a lender that does.
• Invest in life insurance. A life insurance policy provides a death benefit to your loved ones that they can use to pay outstanding debts. It’s possible to get life insurance quotes online, and the younger and healthier you are, the lower your premiums are likely to be.

Is refinancing student loans to a lender that does discharge after death smart?

Refinancing means taking out a new loan to repay your existing loans, which can reduce monthly payments or save money on interest. But refinancing federal student loans into private loans can mean losing discharge protection.

Refinancing private student loans could save money and offer another benefit if your new lender offers discharge after death. In addition to comparing interest rates and loan terms, base your choice of lender on whether discharge at death is available for refinanced loans.

If you are married or have children, you may not want them to be burdened with your student debt if you die. Consider refinancing a cosigned loan into your name alone, but it could create a shared financial obligation if you live in a community property state.

Before refinancing, understand the circumstances in which discharge due to death is offered. That can help you decide if it’s the right move for managing student loans.

>> Read More: Impact of student loan debt