What Happens to Student Loans When a Borrower Dies?

Some student loans have repayment terms as long as 30 years, and a lot can change in that amount of time. So what happens if a borrower or cosigner dies before seeing a $0 balance on their student loan?

In many cases, student loans go away when you die, but death doesn't automatically cancel out a loan. To truly understand what happens to a loan after death, you'll need to understand the terms of the loan and how the lender handles student loans after death.

Here's what happens to student loans after someone dies.

Do student loans get discharged after death?

Whether or not a student loan is discharged after death primarily depends on the type of student loan you have: federal or private.

All federal student loans, including Direct Subsidized, Direct Unsubsidized, Direct PLUS, and Direct Consolidation Loans, are discharged in death.

Private student loans are not governed by the same rules. Whether or not a private loan is discharged upon death depends on the lender, the loan product, and the loan agreement.

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What happens to federal student loans when a borrower dies?

If a federal student loan borrower dies, the loan is discharged.

“It's actually in the promissory note right now, and all federal loans cancel upon death,” says Jan Miller, president of Miller Student Loan Consulting, LLC. He notes that it's a “non-taxable event,” meaning the forgiven amount won't be considered taxable income after discharge.

But what if the parent took out a federal student loan to cover their child's educational expenses? Fortunately, parent PLUS loans also discharge upon death, even if the student is still alive. “If the parent borrower dies, the loan is canceled so the surviving party is not liable for the loan still,” explains Miller. The same is true if the student dies.

What happens to private student loans after death?

Discharge options for private student loans are not as clear.

"Private loans vary dramatically with their terms and conditions," says Allie Bidwell Arcese, senior director of strategic communications and engagement at the National Association of Student Financial Aid Administrators (NASFAA).

“Some [private lenders] will discharge the loan completely if the student passes, and some may pass the loan debt on to the cosigner — even if the cosigner has been previously released from the loan,” Arcese notes. “There could also be situations where the loan debt is passed to the borrower's estate for repayment.”

What about spouses? Can they be saddled with student debt if their partner dies? That depends, according to Miller. The rules regarding student debt and spousal obligations often rely on the lender, whether the borrower took out the loan before or after marriage, and whether they live in a community property state, such as Arizona, California, Texas, or Wisconsin.

Though the rules vary by lender, one relatively recent policy change protects private student loan cosigners. Miller points to the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. If a private student loan was issued after that point and the primary borrower (i.e., the student) dies, “then the cosigner is released from that obligation,” says Miller.

What to consider before taking out a private student loan

If you're taking out a private student loan, make it a point to ask the lender what happens if the borrower or the cosigner dies.

“The best way to protect loved ones is to do a lot of comparison and research before accepting any loan offers,” says Arcese.

Specifically, you can ask the lender about death discharge provisions.

“Many private student loans include a 'death discharge' provision, but the specifics of these provisions can vary significantly,” says Bruce McClary, senior vice president of membership and communications for the National Foundation for Credit Counseling (NFCC).

McClary adds, “Some may discharge the loan entirely, while others might only discharge it if the borrower is younger than a certain age or if certain other conditions are met.”

How to handle student debt after a borrower's death

Rules and procedures will vary by lender. The best thing to do after the death of the borrower is to contact the lender to find out the next steps. Here are some tips to keep in mind:

What to do after the death of a federal student loan borrower

Generally, a federal student loan is discharged once a family member or representative provides the loan servicer with one of the following:

• Original death certificate
• Certified copy of the death certificate
• Accurate/complete photocopy of one of those documents

The loan servicer may accept alternative documentation if you can't obtain one of those documents. For instance, MOHELA will accept verification of death via a county clerk's office official, a clergyman or funeral director, or a newspaper death announcement.

What to do after the death of a private student loan borrower

Death doesn't guarantee a private student loan will be discharged. The first thing to do after a borrower dies is to review the loan agreement or contact the lender to find out if the loan is discharged in death. If it is, you can follow the lender's guidelines for discharge.

Generally, you'll need to provide proof of death, with the documentation above often meeting that requirement.

If the loan isn't discharged, it's essential to speak with the lender about next steps. Depending on the lending agreement, the borrower's marital status, and the state where they lived, the loan may pass to a cosigner, spouse, or the deceased's estate.

What to do after the death of a private student loan cosigner

“Generally, if you already received the loan and your cosigner dies after, this shouldn't affect any of the terms of your repayment plan, but this is up to the lender's discretion,” says Arcese.

In rare cases, a cosigner's death can trigger an automatic default, meaning the loan balance becomes due. If so, you should work with the lender to identify a repayment strategy, such as student loan refinancing.

Regardless of the type of student loan, “It's crucial for a family member or executor to contact the loan servicer as soon as possible to provide the necessary documentation and initiate the discharge process,” says McClary.

“Delays in providing this documentation could result in continued automatic payments, which, while ultimately refunded, can create unnecessary administrative burdens,” he warns.

Planning for student loan debt in estate planning

If you have student loans, make it a point to include them in your estate planning, even if you know they'll be discharged in death.

“For federal loans, while they are discharged at death, it is still wise to include them in estate planning documents to ensure a smooth administrative process for the discharge,” notes McClary.

According to McClary, it's essential that borrowers include their outstanding debt balances when calculating the estate's value, adding that loans that don't get discharged after death become a liability.

It's also helpful to include all pertinent loan information, such as records of the loan type, servicer and lender, and account numbers. This information can help surviving family members or legal representatives manage loans quickly and efficiently.

If loans aren't discharged after death, the consideration is how to protect your estate from that debt. Experts, including McClary, recommend life insurance policies as a means to cover private loan debt and complete comprehensive estate planning.

When selecting a life insurance policy, you can choose between a term policy and permanent life coverage.

• Term life insurance policies cover you for a specific period, such as the 20 years it may take you to repay your loan. However, if you refinance your student loans and extend your repayment period, your life insurance term may end before the loan is paid off. The same is true if you pause payments due to a hardship.
• Permanent life insurance policies, such as whole life insurance, will generally cost more than term coverage. However, the policy will typically last your lifetime, as long as you pay your premiums.

Student loans are just one part of your estate planning, and the best course of action depends on your unique situation. One of the best things you can do for yourself and your family is to contact a financial expert who can help you account for student loans and other debts as you plan your estate.