What happens to student loans when you die?
Student loan debt totals $1.766 trillion as of August 2023. You might worry that you’re passing some of these debt obligations onto your family or co-signers upon your death. However, federal student loans have discharge policies, meaning the loan terminates upon your death. Many private loans do as well. Sometimes this is not the case, and you will need to work to protect your family and co-signers from student debt obligations in the event of your death.
What happens to private student loans if the borrower dies?
Most private student loans may be discharged due to death as long as there is documentation, usually a death certificate. However, it’s not a requirement for lenders to offer this discharge, so there’s a chance that you could run into a lender that doesn’t offer this option.
There could also be complications if you have a co-signer. Some companies will discharge a loan only if the primary borrower dies. Navient, for example, has a discharge in the event of the primary borrower’s death. The same applies to SoFi, but if a co-signer dies, the other surviving borrower might be responsible for continuing payments. With some lenders, it’s possible that co-signers will need to take on responsibility for the loan even if the primary borrower dies.
Some rules are murky depending on the loan you take out. For instance, if a parent borrows for a child and the child dies, the parent could be responsible for the payments. Sometimes, if the parent dies, the child is on the hook for those payments.
What happens to federal student loans if the borrower dies?
When you die, your federal student loans will be discharged. In every instance, proof of death is required for this discharge.
If your parent took out a parent PLUS loan and they die, or if you die, that loan will be discharged as well. You won’t be responsible for those loans when a parent dies.
How do you protect your family or co-signer from student loan burdens if you die?
It can be tricky to make sure your family or co-signers are protected from paying back student loans in case you die. However, federal law from the Tax Cuts and Jobs Act states that private lenders must release co-signers in the event of a primary borrower’s death as long as that loan was received after Nov. 20, 2018.
You might also look into getting suitable life insurance to cover student debt costs in case you have a private loan that does not discharge after your death.
If you’re still looking for loans, read the discharge policies of the loan and try to avoid the loans that do not discharge upon your death. You might also consider refinancing the loan to another servicer that offers discharge policies.
How do you report a death to a student loan servicer?
If you’ve gotten letters from a student loan servicer on behalf of someone who has passed away, you’ll need to contact that lender to report the death. Call the number on the letter and, if you have them handy, provide the account details so it’s easy for the customer service representative to find the account.
On the call, say that the person has passed away and give details of the death. The loan servicer representative will most likely request a copy of the death certificate by either mail or email.
Record details of your phone call, including who you spoke to and when you spoke to them. Make sure that you know the deadline of when you need to submit the paperwork and get a timeline for when you can expect a response about the discharge. Also ask what happens if it gets denied so you’re prepared for other options.
The bottom line
The good news is federal student loans discharge upon your death, as do many private loans. However, it’s important to check the loan contract to understand your discharge policies if you have them. If your loan does not discharge in the event of your death, you might look into refinancing so your loan has a discharge policy. If you cannot get out of your current loan and it does not have a discharge policy, you might look into getting life insurance that covers the remaining student debt.
Frequently asked questions
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No. Your surviving family members are not liable for taxes on discharged student loan balances.
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If your parent took out a private student loan on your behalf and they die, there’s a chance that you could be responsible for paying it back. If it was a federal student loan, it would be discharged. If the loans were for your parents’ use, you’re not responsible for them, and they will most likely get discharged.
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If you were a co-signer on your spouse’s loan, there’s a chance that you could be responsible for repaying it if they die. However, it depends on the loan. For federal student loans, the loan will be discharged in most cases. If you were a co-signer for their private student loan, you’d need to contact the lender to see how to get out of paying the loan.
