What Happens to Student Loans When You Die
Dealing with loss is difficult and understanding how to deal with student loans after is another frustration. This article will help you understand your next steps.
What happens to your student loans when you die? It's not a question anyone wants to find out the answer to. But it's important for student borrowers, their parents, and anyone cosigning for loans, to understand the rules for student loan repayment after a death.
Unfortunately, there's no one right answer to this question because what happens to student loans when you die depends on the kinds of student loans you have as well as several other factors.
Here's what you need to know.
What happens to federal student loans when you die?
If you have federal student loans, there's an easy and simple answer. The loans are discharged. This means the entire remaining outstanding balance of the loan is forgiven and the money will not have to be repaid.
To get federal student loans discharged after death, survivors will simply need to send the loan servicer a certified copy of the borrower's death certificate.
Are the rules different for Parent PLUS Loans?
Parent PLUS Loans can also be discharged upon death. If a parent has taken out PLUS Loans in their name and the student who benefitted from the loans passes away, the PLUS loans are cancelled.
That means parents are no longer obligated to pay any outstanding balance due.
Are the rules different for endorsers?
In some cases, borrowers are not able to qualify for PLUS Loans because they have adverse credit. Those who can't qualify on their own could add an endorser. This is like the equivalent of a cosigner for private loans.
The good news is, if the person whose education the PLUS Loans paid for passes away, there is no obligation for the endorser to repay the debt. For example, if you endorse a PLUS Loan for a graduate student or endorse a Parent PLUS Loan for a parent of an undergrad student, the debt will be discharged if the student dies. You will not be on the hook for repayment because you endorsed the loan.
The death of an endorser, however, does not affect the primary borrower's loan obligations. The primary borrower still must pay the loan back.
What happens to private student loans when you die?
Unlike with federal student loans, there's not one answer to the question of what happens to private student loans when you die. That's because it depends on your loan servicer.
Most of the major private student loan servicers do provide for discharge of private loans upon the borrower's death. But that's not the case for every private lender. If a lender doesn't offer automatic discharge upon death, it could try to collect from the deceased student's estate. This means it could have a claim against any assets they left behind.
This is true for both private student loans originally taken out to pay for school, as well as for private refinance loans.
Are the rules different for cosigners?
If a borrower had a cosigner, the cosigner could still be held legally responsible for repaying the entire loan balance of private loans -- even if the primary borrower passes away.
This means anyone who cosigns for a student's loans would need to pay off the remaining loan balance upon their child's death.
In some cases, the death of either the primary borrower or the cosigner can result in the loan servicer demanding repayment of the entire outstanding loan balance immediately. This can have serious consequences if a borrower or cosigner is suddenly expected to repay tens of thousands of dollars.
Are the rules different for spouses?
If you are married and live in a community property state, it is possible that your surviving spouse could be held legally responsible for repaying student loans after you die. This is more likely to occur if the primary borrower took out the loans after marriage.
The community property states include:
- New Mexico
Student loan debt acquired before marriage generally will not become a surviving spouse's responsibility, nor will debt acquired by one spouse during marriage if the couple doesn't live in a community property state.
If you cosigned for a spouse's private student debt, though, you will always be responsible for it. Likewise, you could be fully responsible for any debt included in a joint or spousal consolidation loan, even if the student loans originally belonged to your deceased spouse.
How to protect yourself against student loan debt after death
Knowing what happens to student loans when you die is important so you can protect yourself and your loved ones. You can protect yourself and anyone helping you to fund your education by:
- Maxing out federal loans before taking out private loans since federal loans are always discharged upon death.
- Obtaining life insurance if you have private student loans with a cosigner. The death benefit can be used to pay off any remaining balance of the cosigned loans.
- Pursuing cosigner release as soon as possible. This is an option some private loan lenders offer, which absolves the cosigner of legal responsibility for the cosigned private loans after a certain number of on-time payments are made.
If your lender doesn't offer cosigner release, you may also wish to refinance your student loans with a new private lender — if you can qualify for a loan in your own name alone.
Juno can help you to find a student loan refinance loan at the most competitive possible rate. We get groups of buyers together and negotiate on their behalf with lenders to save them money on private student loans and private student loan refinance loans.
Disclaimer: This material has been prepared for informational and educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or other advice. You should consult your own tax, legal and accounting advisors first.
Christy Rakoczy Bieber
Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbooks and serving as a subject matter expert.
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