What happens to student loans when you die?

Education debt in America is a long-fought battle, with only 24% of adults in the United States having completely paid off their student loan debt, whether private or federal. Paying off student loans completely can take years, but anything can happen during that time.

While it can be a heavy subject to imagine, most borrowers aren't sure how death affects their student loans. Depending on what kind of loan you take, the answer differs. It is important to understand what happens to student loans when you die so that you may be prepared for any circumstance.

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Is student debt forgiven upon death?

There are policies that administer loan forgiveness or a student loan discharge. However, the type of loan is what determines how death affects the remaining loan balance. It really comes down to whether you have federal loans or private loans left unpaid upon an untimely death.

Federal student loans

If you took out federal student aid, then you're in luck. Federal student loan debt is generally forgiven due to death or total and permanent disability, as long as you take the next steps.

Federal student loan borrowers can have their federal student loans discharged upon submitting the required proof of death. You will need to provide an accurate and complete photocopy of the original death certificate in order to qualify for a federal loan discharge.

The federal government offers a "death discharge" when the primary borrower dies. This means that monthly payments no longer need to be paid on discharged loans, and the remaining federal student loan debt will be cleared.

This applies to parent loans as well. A parent who took out a federal Parent PLUS Loan may apply for a federal loan discharge if the student for whom the parent received the loan dies. A "death discharge" can also be applied by a surviving student if both parents who took out the federal Parent PLUS Loans die.

Private student loans

Private student loans are a different story. Private lenders are not required to administer discharges for private student loan debt and will handle it the same way as other types of debt. In this case, the remaining loan balance is not automatically forgiven when the student borrower dies.

When someone dies, any unpaid debt goes to their estate in a settlement process called 'probate,' where it is covered by their remaining assets, with any money or property they left behind.

Depending on the lender's policy, someone else may be held responsible for repaying the loan as you will read later on.

Some private lenders may even be willing to settle private loans in discretion. Similar to federal student loan debt, you will need to provide proof of the primary borrower's death before you can inquire about options for loan discharges.

Can you inherit student loan debt?

Since you can have federal student loans discharged after providing verified proof of death (such as the borrower's death certificate), the remaining balance on federal loans is usually not inherited and payments no longer need to be made. Following a borrower's death, talk to their federal loan servicer to find out the next steps on getting the loans discharged.

What happens to private student loans can be a bit more nuanced. There are several ways you may inherit student loans from someone else.

Although a person's student debt does not go away when they die, much of the remaining debt will be handled by the deceased person's estate. When someone dies, any unpaid debt goes to their estate in a settlement process called 'probate,' where it is covered by their remaining assets, with any money or property they left behind.

However, the probate process varies by state. If you are married and your spouse takes out student loans during the marriage, you may be liable to inherit your spouse's student loan debt if you reside in what's called a community property state. Borrowers residing in any of the following community property states may inherit any student loans taken out during the marriage:

• Alaska (optional)
• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

If there are any private loans on which you are a co-signer, you may be expected to repay them as the surviving borrower. As a co-signer, you can contact the private lender to see if their policy allows a cosigner release.

Prior to 2017, any student loans discharged due to death or total and permanent disability were considered taxable income by the IRS and were subject to income taxes. Therefore, your spouse or co-signer on the discharged student loan would have had to pay a hefty tax bill even if the student loan debt was discharged.

Thankfully, this changed when the Tax Cuts and Jobs Act passed in 2017 and is in effect until 2025. So, in terms of whether you'll have to pay taxes for inherited student debt, student loans discharged due to death are exempt from taxes for the time being.

Who is responsible for student loans if you die?

Any surviving spouse, parent, or other next of kin is responsible for contacting the student's loan servicer to notify them when the borrower dies. To find out which loan servicer handles the deceased borrower's loans, check the student loans listed on their credit report.

Generally, no one else will need to be held responsible for federal student loans. Once you notify the student loan servicer of the borrower's death, the loans will be discharged.

Depending on the lender's policy, a private loan that was not fully repaid by the borrower's estate may become the responsibility of the deceased borrower's next of kin, parents, spouse, or co-signer. Be sure to understand the loan terms of every student loan you take on. And ask your lender if a loan discharge is available.

Many private student loans might have required a co-signer in order to be approved. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 made two major changes to how co-signers handle remaining debt when the primary borrower dies:

• The act prohibits a private lender from declaring a private student loan to be in default or otherwise accelerating the debt due to the death of a co-signer.
• The private lender must release cosigners from an obligation to repay private student loans if the borrower dies.

The second point is the most noteworthy. Any co-signer is eligible for a cosigner release and will not be held responsible for any student loans taken out anytime after Nov. 20, 2018.

How do you prepare for student loan debt after death?

As you learn what happens to student loans when you die, you may be concerned about protecting your loved ones from inheriting your student loan debt. Student borrowers can take several steps to prepare beforehand when facing the worst-case scenario.

It is important to invest in life insurance. Be sure to secure adequate life insurance coverage in the event of both financial and life crises during the repayment term. A term life insurance policy would include a death benefit that can be used to pay off any existing loans when you die.

If you believe you may need professional help on how to navigate these financial decisions, consider hiring a student loan attorney for guidance. Although most student loan problems can be resolved on your own, a student loan attorney is there if you need help negotiating repayment terms or trying to discharge your loans.

In the worst-case scenario, you will also need to have either an accurate and complete photocopy or the original death certificate prepared to send digitally to the loan servicer or lender.

Bold.org also has many resources to help you pay for college and handle any remaining debt. You can apply for grants to pay off student loan debt. To learn more about how student loans work, check out the Bold.org Blog for other articles just like these.

Frequently asked questions about student loans

Do student loans transfer to next of kin?

Depending on a lender's policy, the remaining student loan debt may move on to a surviving spouse or family member once the student dies. If the loan was taken out by a parent to pay for a student's college tuition, the student debt transfers to any surviving co-signer when the parent borrower dies.

If a parent dies on a federal Parent PLUS Loan, the student for who the loan was taken out for may request to have a PLUS Loan discharge. Similarly, the surviving co-signer on a private loan may request for a cosigner release if the loan policy allows.

However, if you took out a private student loan after getting married and you reside in a community property state, the loan would transfer to your spouse upon death.

Is student debt forgiven upon death?

If you are a student loan borrower, it is important to understand what happens to student loans when you die. Not all student loan debt is forgiven upon death.

Federal student loans may be discharged upon submitting the requested copy or original death certificate. However, not all private student loans are forgiven if a student dies before paying them off completely. In this instance, the remaining debt is paid off by the student's estate.

Depending on the terms of the private student loan, the surviving spouse, parent, or co-signer may be subject to repaying the remaining debt. The terms of the loan may have options for loan forgiveness or a cosigner release that are worth looking into.

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