The question of what happens to student loan debt when you die is complex because the answer depends on a variety of factors.
Since part of working to be financially stable means having plans for your money both before and after you pass away, this is an important question to consider.
In this article, we’ll share what happens to your student loans when you die. We’ll also reveal what you can do now to ensure the burden of your loans doesn’t fall on your loved ones.
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Why You Should Know How Death Impacts Student Loans
We generally don’t like to think about what happens to our debts and other parts of our life if we die early. It’s not a fun topic to talk about.
The good news is that, according to the Social Security Administration, the likelihood of you dying before age 50 is less than one percent.
Plus, if you take extra steps like eating well, exercising regularly, driving safely and being responsible overall, you can lessen your chances of dying early.
However, early death does happen for some people. As a result, it’s important to know what will happen to your student loan balances if you pass away before you repay your loans.
Having this knowledge can help ensure that you and your loved ones are prepared in case the worst happens. It can also help protect them from having to pay off your loans if you pass away.
What Happens to Student Loan Debt When You Pass Away?
The financial responsibility of your student loan balances doesn’t always just disappear if you die before you pay off your balances.
What happens to your loan balances depends on factors such as which type of entity holds the loan, whether you have a cosigner and what state you live in.
Federal loan programs have some of the most lenient options when it comes to student loan responsibilities and the death of the borrower.
If you are the primary borrower or recipient of federal student loan funds and you die, your loan balance will likely be discharged.
A “discharged” loan is a loan in which the responsible party is no longer obligated to pay the loan and the balance is dismissed.
All you need to do is ensure the executor of your estate provides proof of death to your loan servicing center.
The most common document accepted as proof of death is the death certificate issued by your state or county.
Keep in mind that either original copies of the death certificate or certified copies of the death certificate are generally required as proof of death.
Parent Plus Loans
Parent Plus loans also have more lenient rules when it comes to the death of the student loan borrower.
If you (or, more specifically, your parent) have a Parent Plus loan, the loan can be discharged if you, as the recipient of loan funds, die or if the parent that took out the loan dies.
Similar to federal loans, an original or certified copy of the death certificate is usually required. See the government’s official Student Aid website for more information.
Both federal student loans and Parent Plus loans are backed by the federal government. In turn, this makes it easy to ascertain what happens to the balances if you die.
Private student loans are often handled differently in the event of the death of the primary borrower.
With private student loans, discharge is solely at the lender’s discretion as there is no law requiring the discharge of private student loans if the borrower dies.
This is true whether the private student loan was originally a private loan or if it started as a federal or Parent Plus loan that was refinanced with a private loan company.
The following private student loan companies will discharge your student loan balances if you die:
- Wells Fargo
- Sallie Mae
- Citizens Bank
- Common Bond
- College Ave
- Laurel Road
While all of these companies currently discharge student loan balances when the primary borrower passes away, they will not discharge those loans if the cosigner passes away.
It’s important to check with your private student loan company to determine what their rules are regarding the death of the primary borrower and discharge of the loan balance.
Approximately half of all private student loan companies will not discharge a loan balance in the event of the borrower’s death.
If your private student loan company won’t discharge your loan balance in the event of your death, you may want to consider refinancing your student loan balances to a company that will.
Marriage and Student Loan Debt
You may be wondering if your spouse is liable to pay your student loans if you die. The general rule is “no.” However, there are exceptions.
For instance, if your spouse is a cosigner on your student loan and you die, they will still be responsible for paying off your loan.
That said, if you live in one of the states with community property laws, you’ll want to check with your state to get the exact details so you can prepare accordingly.
Additionally, your spouse may also be responsible for paying your student loans if you die when you live in one of the nine U.S. states with community property laws.
When you live in a community property state, the law says that all couples jointly own their property, assets, income and debts.
This is typically only applicable to debts acquired during the marriage, but you’ll want to check with your state to be sure.
The nine states that currently have community property laws on the books are:
- New Mexico
Note that these laws typically only apply in the case of married couples. They usually don’t apply to long-term unmarried couples, even if they live together.
How to Protect Student Loan Cosigners
There are three main ways you can protect cosigners from having to pay your student loan debt if you pass away.
1. Get a Cosigner Release
A cosigner release form is a form you can fill out requesting that the cosigner on your student loan(s) be released from the obligation of payment.
Each student loan company has a different cosigner release form. They also have varying qualifications that you must meet in order to get approved for a cosigner release.
Some of the qualifications could include a history of on-time payments. Or proof that you’ve graduated with your intended degree and verification of income.
Once your cosigner release is approved, you will be solely responsible for paying your student loans.
This means that, even if you die, your student loan company cannot solicit payment of those loans from the person who originally cosigned the loan.
Another option is to refinance your student loan debt into your own name.
Refinancing your student loans with the right company can help you get cosigners off of your loan. Better yet, it could save you money if you can get a lower interest rate.
You’ll likely have the best chances of success with this method if you have a good credit score plus a solid employment history.
Hint: Look at refinancing your student loans by using Splash Financial or check out LendKey.
These companies are loan marketplaces that help you compare the best companies for refinancing student loans.
Just enter information about your current loan balance, interest rate and other information. Then get a list of all of the companies that can offer you refinancing.
Once you’re approved to refinance your student loan and the transfer of loan balance to the company the new loan is with is complete, you will be the sole owner of the loan.
This means that the person who had cosigned the previous loan will no longer be responsible for the loan balance should you pass away.
Plus, if you do end up with a lower interest rate, it’s truly a win-win situation.
3. Buy Life Insurance
One of the easiest ways to help protect cosigners of your student loans from having to pay if you should die is to purchase life insurance.
Life insurance can help designated beneficiaries (which can be your cosigners if you choose) handle your student loans if you die. This is because the insurance provides a source of cash for the loans to be paid off with.
The chances of your passing away at a young age are relatively slim. However, it can help provide some peace of mind knowing that if the unexpected happens, your family won’t have to figure out how to pay off your loans.
Companies such as Bestow offer term life insurance with no medical exam required. You even can get approved on the same day you apply.
Quotes are provided within seconds, and you’ll receive a decision in minutes with Bestow. Life insurance rates start at just $10 per month.
Better yet, buying life insurance can help support other financial needs after you pass away.
For example, if you are supporting or helping to support another person, a life insurance policy can help ensure this support continues.
Evaluate your insurance needs based on your student loans and the financial needs of those you support. Then, choose a policy that meets those needs.
If you have additional questions about what happens to student loan debt when you die, these answers can help.
If you die while still owing a balance on your student loans, your loved ones are responsible for notifying your student loan servicers of your death.
They should will have to show proof of death. This can be in the form of an original death certificate or certified copy of your death certificate.
The IRS considers some discharged student loans to be taxable while others are not.
Some discharged student loans are taxable because the money you no longer owe on the loans is considered income. It’s as if someone gave you a financial gift to pay off the loans.
The discharge amount must be noted on a 1099-C form, better known as a Cancellation of Debt. This form is typically required anytime you have a student loan with a balance of $600 or higher discharged.
However, at this time, student loans that are discharged because of the death of the primary borrower are exempt from being taxed.
This law may change, so consult your tax expert to learn if it is still in place.
The company you use to get life insurance to cover your student loan balances is up to your discretion.
Do your own research on each of the companies you’re considering purchasing life insurance from. This way, you can make sure the one you choose is a good fit for your needs.
One great option to consider is Bestow. This company provides no medical exam life insurance with a same-day decision.
It’s smart to know what happens to student loans when you die. That said, it’s even smarter to ensure that your survivors won’t have to pay your loans.
Make sure you put plans in place. This way, your student loan debt will be covered if you die before they’re paid off.
Work to get rid of your student loan balances quickly. Try to get any cosigners off of your loan and purchase a good term life insurance policy to cover your expenses should you die.
In short, be prepared in order to help protect your family from this type of unexpected financial burden. You and your loved ones will be glad you had a plan in place.
Bestow Disclaimer: The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.
Life insurance quotes provided by Bestow Agency, LLC dba Bestow Insurance Services in CA, who is the licensed agent. Term Life Insurance Policies offered by Bestow are issued on policy form LS181 and LS182, or state version including all applicable endorsements and riders, by North American Company for Life and Health Insurance®, Administrative Office, One Sammons Plaza, Sioux Falls, SD 57193. Products or issues ages may not be available in all jurisdictions. Limitations or restrictions may apply. Not available in New York. Our application asks about your lifestyle and health to determine eligibility in order to avoid requiring a medical exam.