You may worry about leaving your loved ones saddled with your student loan debt if you die when you still owe money. There are a few things that affect what happens to your student loans after you die. These include whether your loans are federal or private and whether you had a cosigner.
Student loans can be a financial burden that impacts borrowers for years. But what happens to these loans when a borrower passes away? Can family members inherit student loan debt? The answer depends on the type of loan and other factors. In this comprehensive guide, we’ll explain how student loan debt is handled after death so you can understand your potential liability.
How Federal Student Loans Are Treated After Death
If the person had federal student loans, they are usually forgiven when they die. According to the U. S. Department of Education, if a person with federal student loans dies, the government will forgive their remaining loan balance as long as they can show proof of death.
The most common types of federal loans that are discharged upon a borrower’s death include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
To receive loan discharge, family members or the executor of the estate will need to send an original death certificate to the loan servicer. The entire federal student loan balance will then be forgiven.
One exception is if the deceased had a Parent PLUS loan In this case, if the parent borrower dies, the loan is discharged However, if the student beneficiary passes away first, the parent borrower is still responsible for repayment.
Overall, federal student loan debt is not passed on to heirs or co-signers after the borrower’s death The government discharges the debt, providing financial relief to surviving family members.
Private Student Loans Have More Varied Policies
Private student loans from banks and other private lenders can have more flexible rules about death and debt than federal student loans. One estimate says that more than a million students take out private loans every year.
As long as the borrower is still alive, private lenders are not required to forgive the loan. Loan terms and how to get out of debt policies can be very different between private lenders.
Some common scenarios include:
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The lender may discharge the loan completely upon death. A lot of the best private lenders, like Sallie Mae, SoFi, and College Ave, say they forgive student loan debt if the borrower dies. Always check the loan agreement for the lender’s exact policy.
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Co-signers may remain responsible. If the loan had a co-signer, they could still be on the hook for repayment even if the primary borrower dies. Co-signer release may be possible under certain conditions.
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The deceased’s estate may owe the debt. If assets remain in the borrower’s estate, the private student loan debt may still need to be repaid by the estate before distribution to heirs.
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Community property laws may require a spouse to pay. In community property states, debts incurred during a marriage are shared. A surviving spouse could be impacted by outstanding private student loan debt.
While federal loans offer reliable discharge, borrowers with private loans should understand the lender’s death policies to avoid saddling family members with unexpected debt. Refinancing or life insurance may help mitigate risks.
Can Spouses Be Responsible for Student Loan Debt?
One common concern is whether a surviving spouse will inherit student loan debt after their partner or spouse passes away. In community property states, the answer is maybe.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, any debt incurred during the marriage is considered joint or communal debt.
So if the deceased took out private student loans while married, the surviving spouse could potentially be on the hook for repayment, even if they were not a co-signer. The loan terms and whether the debt was incurred before or during the marriage can impact liability.
For federal student loans, spouses are not responsible simply due to marriage. The government discharges federal education debt upon the borrower’s death.
Outside of community property states, marriage does not automatically make a spouse liable for the deceased’s student loans. However, they may still need to repay debt if they were a co-signer or the loans impact their joint assets.
Can Children or Parents Inherit Student Loan Debt?
For Parent PLUS loans, the responsibility ultimately lies with the borrowing parent, not the student. So while Parent PLUS loans are discharged if the parent dies, the student is not responsible if they outlive their parents.
In almost all cases, children do not inherit federal or private student loan debt that was borrowed by a deceased parent. The exception would be if the child co-signed on a private parent loan or their state has unique laws.
Similarly, parents are not obligated to repay federal or private loans borrowed by a child who passes away. The child’s outstanding education debt would not transfer to the parents and their estate or co-signers would remain responsible.
The bottom line is that student loan debt has to remain with the actual borrower and does not become the legal responsibility of non-borrowing family members upon death, except in special cases.
When Can Student Loan Debt Be Forgiven Tax-Free?
Historically, forgiven student loan debt was subject to income tax under the argument that loan discharge represented income. This could leave families with significant tax bills at already difficult times.
Thankfully, federal tax laws were changed in 2018. Now, under the current tax code, student loans discharged due to a borrower’s death or permanent disability are exempt from income tax. This tax exemption currently applies to loans discharged between December 31, 2017 and January 1, 2026.
The tax law change provides financial relief and simplicity to grieving families. Neither estate representatives nor family members owe income tax on federal or private student loans forgiven after a borrower’s death.
Key Takeaways
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Federal student loans are fully discharged upon death, while private lenders have diverse policies. Always verify the specific loan dischargeability.
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In community property states, a surviving spouse may share responsibility for debt incurred during marriage.
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Children can’t inherit parent’s student loan debt and vice versa, unless they are a co-signer.
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Loans forgiven due to death are now tax-free, eliminating a prior tax burden for families.
While managing outstanding education debt can be stressful, student loan borrowers can rest easier knowing their obligation ends at death. Review loan terms, consider insurance or refinancing, and educate family members on liability to ensure surviving relatives have the information they need.
What happens to private student loans?
Most (but not all) private lenders offer a death discharge, which means theyll cancel student debt when you die. Things get a bit more complicated if you have a cosigner, which well discuss in the next section.
However, if your lender doesnt offer a death discharge, it can still make a claim against your estate, like any other creditor. If your debt exceeds your assets, such as savings accounts, stocks, and other investments, your estate will be insolvent. That means there wont be money left for an inheritance for your loved ones, but you dont have to worry that your family will “inherit” your debt. If your estate doesnt have enough assets to cover the balance, your lender simply wont be repaid in full.
Pay attention to student loan terms
You probably werent thinking about what happens to your student loans when you die when you initially took on the debt. But its important to be aware of how a lender would handle things should the worst occur.
With federal student loan debt, its pretty simple: The debt is forgiven once survivors provide proof of death. But with private student loans, examine the fine print carefully. If you dont have a copy of the documents you signed, contact your lender or servicer. Be on the lookout for an automatic default policy if you have a cosigner since you could be responsible for repaying your loan immediately should they die.
Is It Actually Possible to Inherit Someone Else’s Debts?
FAQ
Can a student loan be inherited?
In general, student loan debt is not inheritable and does not transfer to a spouse, child, or other loved one upon the borrower’s death. The only exception is if the loan was cosigned. In that case, the cosigner may find themselves responsible for repaying what’s left. But for the most part, this type of debt stays put.
What happens to federal student loans if a borrower dies?
Federal student debt is discharged upon the death of the borrower. Many private lenders will also cancel debt when the borrower dies, but policies vary by lender. Loved ones or spouses can’t inherit student loan debt. What happens to federal student loans? What happens to private student loans? What happens to cosigned or a spouse’s loans?.
Who inherits student loans if you die?
No one inherits your student loans if you die, but private lenders can seek repayment from your estate, a cosigner (for loans taken out before Nov. 20, 2018), or your spouse if you took out the debt during your marriage and you live in a community property state. Can assets be seized for student loans?.
What happens to student loan debt if a parent dies?
When that happens, your federal student loan debt is discharged. The same is true for Federal PLUS loans. This loan will not be charged off if the parent or student who took out the PLUS loan dies.
Can a student loan be discharged if a parent dies?
If the parent borrower or student the PLUS loan was taken out for dies, the debt will be discharged. The only exception is if you co-signed the student loan. This usually is done with private loans. In that situation, the cosigner may find themselves responsible for what’s left of the student loan debt.
Can a student loan be foreclosed if a person dies?
Lenders may have the right to foreclose if payments aren’t made. These debts are paid from the estate during probate. If the estate has insufficient funds, the debt may go unpaid and family members are not held responsible. Federal student loans are forgiven upon the borrower’s death.
Will I inherit my parents’ student loan debt?
If a borrower dies, their federal student loans are discharged after the required proof of death is submitted. The borrower’s family is not responsible for repaying the loans. If the parent dies or the student for whom the parent took out the loan dies, the parent PLUS loan is forgiven.
Is student debt forgiven upon death?
If you die, your federal student loans will be forgiven as long as the required proof of death is sent in.
Does student debt transfer to kids?
No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent borrower, are legally responsible for repaying the loan.
Who actually owns student debt?
A loan holder is the entity that owns your student loan. The loan holder of a Direct Loan is the U.S. Department of Education. A loan servicer is a company we assign to handle the billing and other services on your federal student loan on our behalf, at no cost to you.