Do Federal Student Loans Die With You?

Federal student loans represent a significant form of financial assistance, backed by the U.S. government to help students and their families cover educational costs. These loans, unlike private loans, come with specific provisions designed to offer relief under certain life circumstances. This article aims to clarify what happens to federal student loans when a borrower faces unforeseen events, specifically focusing on the implications of death or total and permanent disability.

Discharge Upon Borrower’s Death

Federal student loans are discharged, meaning they are forgiven, if the borrower passes away. This includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans (including Parent PLUS loans), and Federal Perkins Loans.

To initiate a death discharge, a family member, representative of the estate, or another party must submit documentation to the loan servicer. This documentation includes an original or certified copy of the death certificate. An accurate and complete photocopy of the death certificate is also accepted.

The death certificate should contain the borrower’s full name, date of birth, and date of death. In some exceptional cases, other reliable documentation of death may be accepted if a death certificate is unavailable. This might include verification from a county clerk’s office, a letter from a clergyman or funeral director on official letterhead, or an announcement of death from a local newspaper.

Once the documentation is received, the loan servicer processes the request and, upon approval, discharges the loan. Any payments made on the loan after the date of death are returned to the estate. The discharged loan amount is not considered taxable income for federal tax purposes, though state tax implications may vary.

Discharge Due to Total and Permanent Disability

Federal student loans can also be discharged if a borrower becomes totally and permanently disabled (TPD). This means they are unable to engage in any substantial gainful activity due to a physical or mental impairment that is expected to last for a continuous period of at least 60 months, result in death, or has lasted for at least 60 continuous months. This discharge applies to Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans.

There are three ways to demonstrate eligibility for a TPD discharge. The first is through a determination by the U.S. Department of Veterans Affairs (VA) that the borrower is unemployable due to a service-connected disability. For this method, borrowers need to provide documentation from the VA confirming their 100% disability rating or individual unemployability.

The second method involves a determination from the Social Security Administration (SSA). Borrowers can qualify if they receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) and their next scheduled disability review is within five to seven years, or they have an established onset date for SSDI/SSI of at least five years before applying. Required documentation includes an SSA notice of award or a Benefits Planning Query (BPQY).

The third method requires a physician’s certification. A licensed physician must certify that the borrower is unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment that meets the TPD criteria. The application form includes a section for the physician to detail the condition and its expected duration or outcome.

To apply, borrowers can start the process online through the federal student aid website or contact Nelnet, the servicer that processes TPD discharges, to request a paper application. Upon submission of the complete application and supporting documentation, a temporary payment pause is granted while the application is reviewed. If approved, the loans are discharged, and any payments made after the eligibility date are returned. A three-year monitoring period follows, during which certain income and enrollment requirements must be met to maintain the discharge.

Impact on Cosigners and Estates

Federal student loans generally do not require a cosigner, with Direct PLUS Loans being a notable exception where an endorser might be required if the borrower has an adverse credit history. When a federal student loan borrower dies, the loan is discharged, and this discharge extends to any cosigners or endorsers, relieving them of any repayment obligation. For Direct PLUS Loans, if the parent borrower dies, the loan is discharged. Similarly, if the student on whose behalf a Parent PLUS Loan was taken dies, the parent’s obligation to repay that loan is also discharged.

Upon a borrower’s death, federal student loans are not considered part of the borrower’s estate for repayment purposes. This protection is a significant difference between federal and private student loans, as private lenders may have varying policies regarding death or disability.