All of us need to be prepared for the inevitable, so many wonder what happens to student loans when you die? Must your estate pay them? Are your parents or your spouse on the hook? Are some forgiven and some not forgiven? You might also be searching for a loved one who passed away, and trying to resolve their student loan debt after their death. Let’s take a look at the options available.
Federal Student Loans After Death
Without a Cosigner
If you still have federal student loans when you die, they will be discharged and your estate will not need to pay them. This includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Consolidation Loans and Federal Perkins Loans.
Someone who represents you, often a family member, will need to present proof of death before the debt is discharged. Such proof may include
- The original death certificate,
- A certified copy of the death certificate or
- An accurate and complete photocopy of either of the above
This proof must be submitted to the loan servicer. In the case of Federal Perkins Loans, proof would be submitted to the school, because the school is the lender. The exception would be where your school has appointed a loan servicer, in which case the proof would go to that loan servicer.
With a Cosigner
Federal student loans generally do not require a cosigner. Your rate for a federal student loan is not even dependent on your credit history. It is set by Congress. However, Direct PLUS loans are an exception. You cannot get a Direct PLUS loan with an adverse credit history, so you can seek an endorser, otherwise known as a cosigner, in order to qualify. If you die and you had an endorser on your loan, your Direct PLUS loan is still discharged.
Parent PLUS Loans
Parent PLUS loans are federal student loans, but the parent rather than the student is the responsible borrower. If the parent who borrowed the money or the student dies, the debt is dischargeable. However, if both parents took out the loan and just one dies, the surviving parent must pay the student loan assuming the student is still alive. Of course, proof of death must be submitted as for other federal student loan discharges.
Private Student Loans After Death
Without a Cosigner
The terms of private student loans are not nearly as forgiving as federal student loans, so whether or not your private student loans will be discharged when you die depends upon your student loan contract. Many lenders will forgive private student loans upon the death of the borrower, but if you are just at the stage of thinking about borrowing a private student loan, remember to check the terms regarding death and disability discharge. Remember that no one else is ever responsible for your debt, so if the borrower dies without paying off the student loan no one else can be responsible for repayment unless there is a cosigner or in some cases your spouse.
With a Cosigner
To take out a private student loan you must meet the lender’s credit requirements, which may require a cosigner. If your credit is subpar, you may still be able to get the loan with a cosigner. A cosigner is responsible for a debt if you don’t pay it, and it’s rare for a cosigner to be released from a private student loan. But what if you die? Unless the terms of the private student loan states that the cosigner will be released upon the death of the borrower, the cosigner is responsible to pay off your student loans when you die. Some financial institutions will discharge the debt even with a cosigner, but this is far from something you can assume. Both Sallie Mae and Wells Fargo are examples of financial institutions that will discharge student loan debt upon the death of the student and let the cosigner off the hook.
If your credit rating has improved, and you would like to relieve your cosigner from the responsibility of paying off your loan, you have options. With acceptable credit history, you may be able to refinance your private student loans in your own name without a cosigner with another lender. Of course, you could also refinance with a cosigner if you have no other option. Another possibility is to request that your cosigner be released, but 90% of these requests are rejected. Cosigning a student loan, particularly a private student loan, is a big commitment, and cosigners should not enter into the responsibility lightly.
Seeking Forgiveness For Private Student Loans
In some cases, private student loans can be forgiven or discharged. If you are concerned about leaving a student loan debt to someone who cosigned for you, or to a spouse, you can see if your loan qualifies for any type of forgiveness. The chances are slim as there are not many forgiveness programs for private student loans, but it’s worth looking into.
Marriage and Private Student Loans
If you have no cosigner but are married, and you have student loans when you die, whether or not your surviving spouse is responsible for paying your remaining debt depends upon the laws of your state and the type of loan. Of course, if you have a federal student loan or if the terms of your private student loan indicate that your student loan is discharged when you die, your spouse will not have to pay in any case.
But if you have a private student loan that is not dischargeable upon your death, you live in a community property state, and you borrowed the loan after you were married, your spouse may be responsible. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Other states are common law property states, where a surviving spouse is not usually responsible for debts taken out solely by the other spouse. Laws vary from state to state, so it is best to check with a good student loan lawyer in your location.
If you have federal student loans, they will be discharged when you die. However, if you have private student loans, whether or not your student loans will be discharged when you die and who will have to pay them (if anyone) depends on the terms of your loan agreement and the laws of your state. We hope this article has helped you understand what happens to student loans when you die and will make things just a bit easier for you during a difficult moment you or a loved one may be going through.