Do Student Loans Get Passed Down After Death?

Student loans can be a significant financial obligation, and understanding what happens to them after a borrower’s death is a common concern. The outcome is not always simple, as it depends on the specific type of loan and other financial arrangements. Navigating these details can provide clarity and peace of mind for borrowers and their families.

Federal Student Loan Discharge Upon Death

Most federal student loans are discharged when the borrower passes away. This means the outstanding debt is forgiven, and the borrower’s family is not responsible for repayment. This policy applies to Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans.

To initiate the discharge process, a family member or the representative of the deceased borrower’s estate must submit proof of death, such as a death certificate, to the loan servicer. Once approved, the federal government cancels the debt. Federal student loans discharged due to death after January 1, 2018, are not considered taxable income by the Internal Revenue Service.

Private Student Loan Policies Upon Death

The handling of private student loans after a borrower’s death differs considerably from federal loans. Private lenders are not federally mandated to discharge debt upon death, and their policies vary significantly. Some private lenders may offer a full discharge, while others might not.

It is important to review the loan agreement to understand the lender’s policy. If a private loan is not discharged, the debt becomes part of the deceased borrower’s estate. The estate’s assets may be used to satisfy the debt, or if the loan was co-signed, the co-signer could become solely responsible for the balance. Contacting the private loan servicer directly is advisable to ascertain their death discharge policies and required documentation.

Parent PLUS Loan Discharge Upon Death

Parent PLUS loans are federal loans, but they have specific discharge rules that account for the unique relationship between the borrower and the student. A Parent PLUS loan can be discharged if the parent borrower dies. The loan can also be discharged if the student for whom the loan was taken out passes away.

To process this discharge, a family member or representative must provide a death certificate to the loan servicer, whether it is for the parent borrower or the student. Upon approval, the loan is forgiven.

Co-signer Responsibilities After a Death

A co-signer on a student loan assumes legal responsibility for the debt if the primary borrower is unable to make payments. This obligation extends to situations involving the borrower’s death, particularly for private student loans. If the primary borrower dies and the private lender does not have a death discharge policy, the co-signer may become fully responsible for the outstanding loan balance.

Should a co-signer die, the situation also presents implications for the primary borrower. Some older private loan agreements may contain “auto-default” clauses, which could trigger immediate repayment or place the loan into default, impacting the primary borrower’s credit. However, for private student loans originated after November 20, 2018, co-signers are released upon the primary borrower’s death. Borrowers should review their co-signing agreements and communicate with their lender to understand potential scenarios.

Debt and Estate Responsibility

Generally, debt is not directly inherited by family members. Instead, when a person dies, their debts become the responsibility of their estate. The estate encompasses all assets left behind by the deceased.

The executor of the estate is responsible for settling these debts using the estate’s assets. Creditors, including student loan lenders if the loan is not discharged, are paid from these assets before any remaining inheritance is distributed to heirs. Family members become personally responsible for a deceased person’s debt only if they co-signed the loan or if the debt was secured by an asset they inherited.