When you’re young and building your career, death and estate planning is the last thing you want to think about. But if you have student loans, you need to have a plan in place for what will happen if you pass away. Otherwise, your student loans may not die with you, and your loved ones could be stuck footing the bill. Are student loans forgiven if you die? While you may think it makes sense that lenders would forgive your debt if you pass away before they’re repaid, that’s not always the case. Whether your loans are eligible for discharge is dependent on the type of loans you have and the lender.
Federal Student Loans
If you have federal loans, how your loans are handled is straightforward. If you have any of the following loan types, your loved ones can file for student loan death discharge, meaning the loan will likely be eliminated and won’t need to be repaid:
- Direct Subsidized
- Direct Unsubsidized
- Direct GRAD Plus
- Direct Consolidation
To qualify for the loan discharge, your family will have to contact your loan servicer and submit documentation of your death, such as a death certificate.
Federal Parent PLUS Student Loans
With Parent PLUS Loans, most parents are able to qualify for student loan death discharge if the student passes away. Parent PLUS Loan may also be forgiven if the parent dies. Similar to other federal loans, proof of death is necessary in order to pursue this type of student loan discharge.
Private Student Loans
When you don’t qualify for enough federal financial aid to cover the total cost of your education, private student loans can be a useful financing option. In fact, the Institute for College Access and Success reported that approximately 5% of undergraduate students use private student loans to pay for a portion of their education. While private student loans can be useful, they are not eligible for federal benefits or loan discharge programs, so what happens to your student loans when you die can be more complex. Private student loans are part of your estate and will be handled like other forms of debt if you die. Many private loan lenders do not offer discharges, even if you die. If that’s the case, debts that are outstanding will likely be passed to the estate, ensuing with the collection of assets, liabilities, and debts owned by you. Some lenders have policies that allow for loan discharge if the primary borrower dies, but it’s up to the lender’s discretion.
Co-Signed Student Loans
One of the most common questions borrowers have is, “If I die, what happens to my student loans if I have a cosigner?” Adding a cosigner to your refinancing or student loan application could help you qualify for a loan and a better interest rate than you’d get on your own. However, it’s a big responsibility for your cosigner. How cosigners and student loan discharge is handled varies widely by lender. With some, the cosigner is responsible for repaying the remaining balance of the loan if the student borrower dies. Other lenders will discharge the cosigner’s responsibility to repay the loan if the student dies. If you aren’t sure how your lender handles loan discharges, check your promissory note or loan agreement.
Will My Spouse Be Responsible for My Student Loans?
In most cases, the responsibility of repaying student loans if the borrower dies does not automatically fall to the borrower’s spouse. Student loans and marriage affect each other in many ways, but generally, this is not one of them. In a few scenarios, however, that may not be the case. For example, if a spouse co-signed the student loan, then they may become responsible for the remaining balance. Additionally, if a married couple lives in a community property state, then debt is considered to be the responsibility of both parties. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas Washington, Wisconsin and, in most cases, Alaska.
How to Report a Death to Your Student Lender
If you’re working toward a student loan death discharge, it’s important to have the appropriate documentation. The following documents may be accepted as proof of death:
- The individual’s death certificate
- Verification from the county clerk’s office
- A letter from the funeral director
- A letter from the clergy
- Verification from a credit bureau
- Verification from the Social Security Administration
Will I Have to Pay Taxes on the Forgiven Debt?
According to the Tax Cuts and Jobs Act of 2017, when an individual’s student loans are discharged due to death or disability, then their forgiven loans will not incur taxes. Regardless of whether the borrower had federal or private student loans, this protection remains in place until 2025.
Plan For the Worst
If you’re worried about what could happen to your student loans if you die, then alleviate some concerns by being prepared. While your family likely won’t have to worry about repaying your federal student loans, that may not be the case if you took out private student loans. If you’re looking for a faster way to repay your private student loan balance, consider student loan refinancing. By refinancing your student loans, you could qualify for a lower interest rate, and you could save money or pay off your loans faster. Or, you can opt for a longer loan term and reduce your monthly payments. Regardless, choosing a financial plan that facilitates your student loan repayment process is a great way to prepare for anything that may happen. Additionally, if your current lender does not offer a cosigner release option, then you could refinance your student loans under your own name so that the cosigner is no longer responsible for them. You could also refinance Parent PLUS Loans in your student’s name once they meet the eligibility requirements. If you’re interested in student loan refinancing, explore ELFI’s Student Loan Refinancing Calculator* to see what you could save.
