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What happens to student loan debt when you die?

December 2, 2022, 11:11 PM UTC
Photo illustration of a bundle of flowers laid on top a stack of student loan bills.
In many cases, student loan debt is discharged when you die, but that’s not always what happens
Photo illustration by Fortune; Original photos by Getty Images (4)

It’s hardly any secret that student loan debt is a major burden for individuals and families across the country. According to the Education Data Initiative, student loan debt in the United States totaled $1.745 trillion as of the third quarter of 2022. About 92.7% of all debt is federal student loans.

The average individual debt balance, when including both federal and private loans, is projected to be about $40,780, according to the same Education Data Initiative report.

So what happens if the worst occurs and the borrower passes away without having fully repaid their student debt? It’s an important question to consider. And the answer varies based on the type of loan in question.

What happens to federal student debt when you die?

The process for dealing with federal student debt in the event of a borrower’s passing is the most straightforward. According to the U.S. Department of Education, federal student loans are discharged. This policy also includes Parent Plus loans. If either the parent who took out a Parent Plus loan, or the student who was the beneficiary of the loan, passes away, the debt will be discharged.

However the discharge of the debt does have other financial consequences.

“The discharge is typically taxable,” says Conor Mahlmann, certified student loan professional and a student loan advisor for Student Loan Planner. “The estate would be responsible for the taxes on the discharged loan. As an unsecured debt, it would go in line with all of the other unsecured debts that must be paid by the estate.” 

For the time being however, thanks to the adoption of the Tax Cuts and Jobs Act, this death discharge tax responsibility has been waived through 2025

What happens to private student debt when you die?

While only about 7.3% of student loan debt is tied to private loans, according to the Education Data Initiative, it’s equally important to understand how to deal with this financial burden should the need arise. When the borrower dies, the remaining private student loans may be handled in a variety of ways.

“Private loans vary by lender. Some will discharge upon the death of the borrower. Others bill the debt to the deceased estate,” says Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors.  

Some lenders, such as Sofi, state very clearly on their websites that they will discharge the debt if the borrower dies. Earnest is another example of a lender that will discharge student loans in most cases in the event of the borrower’s death.

But here, too, there would be taxes to be paid on the discharge for which the deceased’s estate is responsible for paying, says Mahlmann.

What happens to co-signed loans or a spouse’s loans?

If the private student loan debt involved a co-signer or belonged to a spouse, the resolution is less straightforward. Again, the policy often varies from lender to lender.

“In some cases, if the primary borrower should pass away, the co-signer is still liable, but in others, it is forgiven,” says Mayotte. “The borrower’s promissory note should state the rules for their particular private loan.”

A co-signer may indeed be responsible for repayment when a borrower dies and the deceased individual’s estate cannot cover the balance remaining. 

“If there’s a balance that can’t be paid from the borrower’s estate and the lender doesn’t include death discharge clauses, a co-signer could be on the hook to make payments on the remaining balance,” says Mahlmann. “This is true only for private loans taken before November 20, 2018. After that, co-signers are protected from having to handle the balance in the event of a borrower’s death.” 

In the same scenario, a spouse could be required to make the payments as well, if the student loans were established during the marriage and the couple lives in a community property state. It’s also worth noting that in some instances a cosigner’s death may trigger an automatic default of the student loan. This can occur even if you’ve been making all of the loan payments on time all along. 

“This means that the full balance becomes due immediately,” says debt relief attorney Leslie Tayne, of Tayne Law Group. “While you are probably not legally required to notify your lender of a cosigner’s death—this would be outlined in the promissory note— some banks review public death records for this reason.”

How to report a death to a student loan servicer 

Reporting the death of a student loan holder is typically a straightforward process, whether it’s private or federal loans. Proof of death is usually required to be submitted to the loan servicer by a family member or some other representative. 

In the case of federal student loans specifically, there’s a handful of acceptable forms of documentation that can be used in such cases:

  • Original death certificate
  • Certified copy of a death certificate
  • An accurate or complete photo copy of either one of those documents. 

“The exact process will depend on the loan servicer. When a borrower dies, a family member should gather the appropriate documentation and then reach out to the servicer for each loan to determine the next steps,” says Tayne.

How to be prepared and protect your family  

While it’s never easy or pleasant to think about death, if you have significant debt, it’s important to lay the proper groundwork to protect your loved ones. There are various actions you can take to minimize the financial burden on your heirs or family members should you pass away with unpaid private student loan debt.

“First, borrowers need to ensure that their families or survivors know how to access their servicer’s online portal in the event of their passing,” explains Mahlmann. “This is generally true of any financial accounts.”

In addition, borrowers who have private student loans that do not include a death discharge clause should ideally have an adequate amount of life insurance to ensure that the loans can be paid off in the event of their passing without causing financial distress to their families. It may also be worth exploring refinancing with another lender that offers a death discharge policy, says Mahlmann.

Those holding loans with a co-signer may also want to explore their options as well. “If you have a very ill cosigner, it may be a good idea to pursue a cosigner release,” says Tayne. “This is a process where you demonstrate to your lender that you’re now financially capable of managing your loans on your own, and get the cosigner removed. And if your cosigner dies, you should look into refinancing immediately.”

The takeaway 

It’s important for those who have student loan debt—and even their family members and loved ones—to be aware of what happens in the event of the borrower’s death. Loan requirements and clauses pertaining to death should be reviewed well ahead of time. And if you’re holding student loan debt that does not include a death discharge, there are several steps to consider including obtaining enough life insurance to cover the outstanding debt or refinancing the loan with a lender that offers a discharge policy.

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