What Happens to Student Loans When You Die?
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Summary:
Federal student loan debt will be discharged when you pass away. However, if you took out student loans with private lenders, whether your loved ones are responsible for repaying your debt will depend on the lender’s terms and whether or not you had a family member cosign your loan. Be sure to check with your student loan servicer to get a better idea of what their policy is in the case of your death.
According to a recent report by the Education Data Initiative, student loan debt in the United States has surpassed $1.757 trillion, making it the second-highest category of consumer debt after mortgages. This means that the average student borrower owes $37,338 in federal student loan debt, which increases to $40,114 when private loans are taken into account.
So what happens to all of that debt if a borrower passes away before it’s repaid? Does it magically disappear, or is someone else now responsible for paying it off? Let’s take a closer look at what happens to student loans when you die and how you can better prepare for such a scenario.
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What happens to federal student loans when you die?
If you took out federal student loans to pay for school but then pass away before you can pay off the debt, the Education Department will cancel the debt for you. However, for that to happen, your loved ones must submit proof of your death to your federal student loan servicer.
Parent PLUS loans can also be discharged if the student or parent cosigner dies. Proof of death is also required for this discharge to be approved.
What happens to private student loans when you die?
Unlike federal student loans, which make it relatively straightforward to discharge student loan debt due to a death, private student loans are a bit more complicated. Because private student loan lenders are not required to discharge your debt after you pass, some may not forgive your debt obligations upon your death. For example, private lenders SoFi and Navient may require a cosigner to take on responsibility for a loan upon the primary borrower’s death, or vice versa.
Policies may vary depending on the type of student loan you take out and the lender you work with, so check with your lender to ensure you understand what would happen in the event of your or your cosigner’s death.
How to report a death to a student loan servicer
If you receive letters from a student loan servicer on behalf of a loved one who has recently passed away, you should contact the lender to report the person’s death. You can do so by calling the lender’s customer service representatives and providing the account details associated with the student loan. They’ll most likely ask you to provide a certified copy of the original death certificate by mail or email to approve a discharge (if possible).
How to protect your loved ones from your student debt
While your loved ones most likely would not be responsible for your debt if you passed away after taking out a federal student loan, it’s always wise to know how to protect them from your debt obligations in the event of your death, in order to prevent headaches for them down the road.
How to protect your loved ones from your debt
- Talk to your loved ones. Let your loved ones know who your student loan servicer is so they know where to send a copy of your death certificate to discharge your student debt.
- Consider death discharge policies. While federal student loans will be forgiven when you die, private student loan debt will not always be wiped out. Before taking out private loans, it’s worth considering the lenders’ discharge policy so you know what to expect.
- Check your private lender’s policy. If you have existing private student debt, check your lender’s policy to see what your options are. If their discharge policy makes the cosigner liable for your loan when you pass away, find out if it’s possible to get a cosigner release to have them taken off the loan.
- Consider taking out a life insurance policy. If you don’t want to refinance your student loan and work with another lender, another proactive step you can take is to obtain life insurance coverage. Retired financial planner Michael Ryan says, “Having an appropriate life insurance policy can provide financial protection and help cover outstanding student loan debt in the event of your untimely passing. It’s important to explore different options and consult a financial advisor to determine the best approach for individual circumstances.”
What to do if you’re overwhelmed by student loan payments
If you’re struggling to keep up with your student loan payments, don’t fret. Here are a few tips to make your debt repayment more manageable.
- Get on an income-driven repayment plan. An income-driven repayment plan calculates your monthly student loan payment based on your discretionary income and family size, making it more affordable. Keep in mind that you’ll have to recertify your income each year to remain in the plan.
- Request forbearance or deferment. If you’re currently experiencing financial hardship, you may be eligible for forbearance or deferment. Both forbearance and deferment allow you to temporarily pause your student loan payments. The only difference between the two is that interest will still accrue while your loan is in forbearance, whereas interest stops accruing if you’re in deferment.
- Consolidate your debt. Consolidating your debt means lumping your existing loans into a new loan with more favorable terms. The Department of Education allows you to consolidate your federal student loans for free. Simply fill out the debt consolidation loan application to see if you’re eligible.
- Reach out to a financial counselor. If you’re feeling overwhelmed by your finances, don’t be afraid to seek help from a financial counselor. They can help you create a budget, develop a debt repayment plan, and explore your options for loan forgiveness or repayment assistance.
- Refinance the loan. Refinancing your federal or private student loans can potentially help you save money on interest and make your monthly payments more manageable. However, you’ll generally need an above-average credit score to qualify for the best rates.
Pro Tip
Try to avoid refinancing federal student loans, since you’ll lose eligibility for federal programs like income-driven repayment plans and student loan forgiveness. Only resort to this strategy if you’re certain that refinancing will make debt repayment easier and that you won’t need assistance from the aforementioned government programs.
FAQ
Can student loan debt be inherited?
In general, student loan debt is not inheritable and does not transfer to your loved ones — especially if you took out a federal student loan. The only exception is if the student loan was issued by a private lender and a family member cosigned the loan. In this case, whether your loved ones are responsible for repaying your debt depends on the lender’s policy.
Are student loans forgiven upon death?
It depends on the type of loan. Federal student loans are forgiven upon the borrower’s death. If you took out a private student loan, however, then whether your debt will be forgiven or passed on to the cosigner depends entirely on your student loan lender’s policy, so check with them to see how it works.
Are student loans forgiven after 25 years?
You can have your federal student loans forgiven after 25 years, but only if you have been repaying your loans under an income-driven repayment plan. According to Federal Student Aid, if you’re eligible for the repayment plan, “any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 years (if all loans were taken out for undergraduate study) or 25 years (if any loans were taken out for graduate or professional study).”
Do student loans go away after seven years?
While unpaid student loans will fall off your credit report seven years after the date of the first missed payment, your student loans will not disappear entirely. You’re still responsible for repaying the debt.
Do I inherit my spouse’s student loan debt?
If your spouse took out a student loan before your marriage, you have no obligation to repay their debt if they pass away. However, if you live in a community property state — California, Arizona, Nevada, Louisiana, Idaho, New Mexico, Washington, Texas, or Wisconsin — and your spouse took out a private student loan that you cosigned after marriage, you could be liable for the debt. Ask your spouse’s student loan servicer about their death discharge policy.
Key Takeaways
- Federal student loans are canceled if the borrower passes away, but proof of death must be submitted for the discharge to go through.
- Private student loan lenders are not required to discharge debt after death, so policies vary. That’s why it’s important to check with the lender to see if your loved ones will be on the hook for any debt you leave behind upon your death.
- To protect your loved ones from debt obligations in the event of your death, make sure you understand the discharge policy of your student loan program and talk to your loved ones about what to do in case you die unexpectedly.
- Strategies for managing overwhelming student loan payments include income-driven repayment plans, forbearance or deferment, consolidation, seeking financial counseling, and refinancing (with caution for federal loans).
While no one likes to think about their mortality, having a clear idea of what happens to your student loans after you die can bring peace of mind. If your current student loan servicer does not discharge loans even after the primary borrower dies, you may want to consider refinancing your loan and working with a lender who offers this benefit. Check out SuperMoney’s guide on how to refinance your loans, and use our comparison tool to find the best rates on student loan refinancing!
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