What Happens If a Cosigner Dies on a Student Loan?

When a student loan includes a cosigner, the unexpected death of that individual can introduce complexity to an already challenging financial obligation. Understanding the financial implications of a cosigner’s death is important for borrowers to manage their responsibilities and avoid potential financial distress.

Cosigner Responsibilities and Loan Types

A cosigner on a student loan shares equal legal responsibility for the debt alongside the primary borrower. If the primary borrower fails to make payments, the lender can pursue the cosigner for the outstanding balance. The implications of a cosigner’s death vary significantly depending on whether the student loan is federal or private. Federal student loans are backed by the government and operate under standardized rules, offering specific protections and terms.

Private student loans are issued by banks, credit unions, or other financial institutions, and their terms and conditions can differ substantially from one lender to another. While federal loans generally do not require a cosigner, certain federal loans, such as the Direct PLUS Loan, may involve an “endorser” who acts similarly to a cosigner if the borrower has an adverse credit history. Understanding these distinctions is foundational, as the policies concerning a cosigner’s death are not uniform across all loan types.

Federal Student Loan Policies

Federal student loans, including Direct Subsidized, Unsubsidized, and PLUS loans, have specific provisions for discharge upon the death of the borrower. The loan is discharged, and the borrower’s family is not responsible for repayment. For a Parent PLUS Loan, the loan is discharged if either the parent borrower dies or the student on whose behalf the loan was obtained dies. This discharge requires submitting a death certificate to the loan servicer or the U.S. Department of Education.

However, if an “endorser” on a Direct PLUS Loan passes away, the loan is not discharged, and the primary borrower remains responsible. The endorser is simply removed from the loan agreement. Any student loan debt discharged due to death is currently exempt from federal income tax through December 31, 2025.

Private Student Loan Policies

The policies for private student loans when a cosigner dies are more varied and less predictable than those for federal loans. Historically, some private loan agreements included clauses that triggered an automatic default, making the entire loan balance immediately due upon the death of a cosigner. This could significantly harm the borrower’s credit score if they were unable to pay instantly.

However, due to pressure from the Consumer Financial Protection Bureau (CFPB), many private lenders have eliminated or softened these automatic default provisions. In many current scenarios, the death of a cosigner may result in their removal from the loan, with the primary borrower continuing to make payments under existing terms. Borrowers must review their specific loan agreement, often called a promissory note, as older contracts might still contain immediate repayment clauses. The primary borrower remains responsible for the loan.

Actions for Borrowers

Upon the death of a student loan cosigner, the initial step for the borrower involves locating all relevant loan documents, particularly the promissory note. This document outlines the specific terms of the loan and identifies whether it is a federal or private loan, along with any clauses pertaining to a cosigner’s death. Accessing these documents, either physically or through the lender’s online portal, is essential for understanding the loan’s provisions.

Promptly notifying the loan servicer or lender about the cosigner’s death is advisable, although not all loan agreements explicitly require it. This notification typically necessitates providing official documentation, such as a death certificate, to confirm the cosigner’s passing. Maintaining clear and documented communication with the lender throughout this process can help prevent misunderstandings and provide a record of all interactions.

For federal student loans, payments should generally continue as scheduled, as an endorser’s death does not typically alter the primary borrower’s responsibility. For private student loans, the borrower should inquire about options like removing the deceased cosigner from the loan or negotiating adjusted repayment terms, such as temporary payment reductions or forbearance. Refinancing the loan is another viable option, which can help remove the deceased cosigner and potentially secure more favorable interest rates or repayment terms. If the original loan agreement included an automatic default clause, refinancing quickly, possibly with a new cosigner, before the clause triggers is a proactive measure to protect one’s credit.