Do Student Loans Get Passed On After Death?

When a person passes away, the question of what happens to their outstanding debts, including student loans, depends significantly on the type of loan involved. Understanding these distinctions can provide clarity and help families navigate a difficult time.

Federal Student Loan Discharge Upon Death

Federal student loans are generally discharged upon the death of the borrower. The U.S. Department of Education cancels the remaining balance, and the debt is not passed on to the borrower’s estate, spouse, or other family members.

These include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans for students (also known as Grad PLUS Loans), Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans.

Private Student Loan Considerations Upon Death

Private student loans, unlike federal loans, typically do not have automatic death discharge provisions. The treatment of these loans upon a borrower’s death varies considerably based on the specific terms outlined in the loan agreement and the individual lender’s policies. Some private lenders may offer a death discharge, but it is not a universal requirement.

Co-signers are a concern with private student loans. If a private loan has a co-signer, that individual typically remains responsible for the outstanding debt if the primary borrower dies. While some lenders might discharge the co-signer’s responsibility, this is not guaranteed and often depends on the loan agreement or a “compassionate review” process. For loans originated after November 20, 2018, an amendment to the federal Truth in Lending Act (TILA) stipulates that lenders must release co-signers and the estate from obligation upon the primary borrower’s death. However, for loans taken out before this date, the responsibility primarily falls on the co-signer or the borrower’s estate if the loan agreement does not include a death discharge clause.

Parent PLUS Loans and Death

Parent PLUS loans are federal loans taken out by parents to help finance their child’s education. These loans have specific discharge conditions upon death that differ from other federal student loans taken directly by the student. A Parent PLUS loan can be discharged upon the death of either the parent borrower or the student on whose behalf the loan was taken.

If the parent borrower passes away, the Parent PLUS loan is discharged. Similarly, if the student for whom the loan was obtained passes away, the Parent PLUS loan is also discharged. This applies even if the loan had an endorser or co-signer.

The Discharge Process and Tax Implications

To initiate a student loan death discharge, a representative of the deceased borrower, typically a family member or the executor of the estate, must contact the loan servicer for federal loans or the private lender. The primary documentation required is an original or certified copy of the death certificate. Some federal servicers may accept alternative documentation if a death certificate is not readily available, such as a verification from a county clerk’s office, a letter from a clergyman or funeral director, or a newspaper announcement of death.

Any payments made on federal loans after the confirmed date of death are typically returned to the estate. It is advisable to provide the required proof of death as soon as possible to prevent further collection activities.

The American Rescue Plan Act of 2021 made most student loan discharges, including those due to death, non-taxable at the federal level. This provision is currently in effect through December 31, 2025. Historically, discharged debt could be considered taxable income, leading to a potential “tax bomb.” While federal loan discharges are generally exempt during this period, the tax treatment of discharged private loans can vary and may depend on individual state tax laws. Consulting a tax professional is recommended to understand specific tax liabilities, especially for discharges occurring outside the federal tax-exempt period or for private loans.