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Student Loan Discharge Due to Death

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In a Nutshell

This article will focus on whether your federal student loan or private student loan discharges when you die. It will also answer the question of whether a cosigner or your spouse will be liable for your student loan debt. The tax consequences of a student loan debt discharged upon your death will be considered. Last, this article covers strategies to avoid financial difficulty for your family or cosigners after your death.

Written by Attorney John Coble
Updated December 31, 2021

What happens to a student loan if you die before it's paid? Does the lender collect from your estate? Do they collect from a spouse or your parents? The short answer is "no." If you, the student dies, no one is responsible for making your student loan payments. Of course, it isn't that simple. Whether your student loan is a qualifying loan for a discharge due to death depends on many factors, including  the type of loan you have. 

This article will focus on whether your federal student loan or private student loan discharges when you die. It will also answer the question of whether a cosigner or your spouse will be liable for your student loan debt. The tax consequences of a student loan debt discharged upon your death will be considered. Last, this article covers strategies to avoid financial difficulty for your family or cosigners after your death. 

Federal Student Loans

Federal loans are discharged when the borrower dies. Discharge is a term often used interchangeably with cancellation and forgiveness. In other words, repayment of the loan isn't required once it’s discharged. Your loan balance is forgiven. A key question is, which loans are federal student loans?

FFEL Program and Direct Loans Program

Federal loans include Stafford Loans and PLUS Loans made under the Family Federal Education Loan Program (FFEL). FFEL was a program where the federal government guaranteed the student loans of private lenders. The FFEL program ended in 2010; now, all new federal loans are made by the U.S. Department of Education through the Direct Loans Program, not private lenders. 

PLUS Loans

Since new loans under the FFEL Program ended on 6/30/2010, all PLUS Loans since that date are through the Direct Loans Program. Parent PLUS Loans are PLUS Loans for undergraduates where a parent (or both parents) takes out the student loan. Graduate or Professional school PLUS Loans don't have liability for the parent(s). A Parent PLUS Loan, whether under FFEL or Direct Loans, discharges upon the death of either the student or the parent(s) borrowers. 

With other federal loans, the student is both the borrower and the beneficiary. With Parent PLUS Loans, the student is the beneficiary and the parent is the borrower. If both parents are borrowers, both parents would have to die to get a death discharge through the parents. If there’s only one parent on the loan and it’s the parent obligated on the loan that dies, the discharge due to death will be granted. If the student that benefited from the loan dies, the discharge due to death will be granted.  Regardless of whether the discharge is through the parent(s) or the student, no one is liable for the debt after the death of the student or the parent(s). The debt is canceled.

Perkins Loans

Perkins Loans are federal loans made to those with exceptional financial need. Perkins Loans are not part of the FFEL Program or Direct Loans Program. Educational institutions made Perkins Loans and the federal government guaranteed these loans. The last loans under the Perkins program were made by 9/30/2017 and the last disbursements were made by 6/30/2018. Though these FFEL and Perkins Loans are no longer being made to students, there are still millions of people paying on these loans. All of them discharge upon the death of the student borrower.

Federal Perkins Loans provide a death discharge too. The only difference between other federal loans and Perkins Loans is Perkins Loans aren't direct from the federal government, loan servicer, or a private bank. Educational institutions make Perkins Loans. For this reason, the paperwork necessary for the death discharge is sent to the educational institution, not the Department of Education or the private lender.

Regardless of the type of federal loan, to get the death discharge, the estate of the decedent must provide an original or a certified copy of the death certificate to the lender as proof of death to show your eligibility to discharge student loans. The National Center for Health Statistics provides this web page to help you determine who to contact to obtain the necessary death certificate. You can find the information by clicking on your state.

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Private Student Loans

There's no federal law requiring the discharge of private student loan debts upon the death of the borrower. This means private student loan lenders, such as Sallie Mae or a bank, could collect against your estate, from a cosigner, or possibly from your spouse.

With private student loans, the first question to ask is, "Do you live in a community property state?" In community property states any assets or liabilities accumulated during the marriage are shared with your spouse. If you live in a community property state and took out the loan during the marriage, your spouse might be liable even though they didn't sign the loan. The community property states are Arizona, California, Idaho, Louisiana, Texas, Nevada, New Mexico, Washington, and Wisconsin. California has an exception in its community property law for student loans. The other community property states have no such exception.

Even if your spouse is liable under community property laws, there may still be hope. The lenders' policy or the language of the contract may prevent your spouse from being liable in a community property state. It's a good idea to look at your loan agreement to see if your spouse is protected if you die. Request a written statement of your lender’s policy for loans after the death of a student. Consult with an experienced attorney if you have difficulty understanding these documents. You can find experienced student loan lawyers through this database on the National Association of Consumer Advocates website. If you have difficulty affording an attorney, the American Bar Association provides this directory of free legal aid resources.

If you don't live in a community property state or you live in California, your next question should be whether you have a cosigner. If there's a cosigner, there are steps you can take to protect them . 

First, you could negotiate a release of the cosigner with your lender. The lender may allow this in exchange for a higher interest rate. Second, you could refinance the loan without the cosigner. Refinancing without a cosigner could lead to a higher interest rate. Third, you could buy a life insurance policy to protect the cosigner for the amount of the debt. If your sole purpose for buying life insurance is to cover the potential student loan monthly payments, it's a good idea to use term life insurance. Term insurance is less expensive and in this situation, it wouldn’t make sense to insure beyond the student loan repayment period.

Even if there's no cosigner, the lender could still collect against your estate. That is, the lender would get its money before anyone could inherit money from you. In this case, you could use life insurance to pay off the loan upon your death so the proceeds of your estate could pass to your family members and other loved ones.

Tax Consequences of Discharged Student Loan Debt

Even if the student loan is discharged due to the death of the borrower, there's still the issue of taxes due. The IRS treats discharged debt as income like they treat your paycheck as income. The good news is that since 2018, there's an exclusion from income for student loans discharged due to death or permanent disability. The bad news is this exclusion ends in 2025 unless renewed by Congress. Even with the federal exclusion, state or local governments might tax these discharged debts.

Let’s Summarize...

If you are a student loan borrower and you die while owing on a federal student loan, that debt is discharged. It doesn't matter if it's a pre-2010 loan guaranteed by the federal government but made by a private lender, a direct federal loan, a subsidized loan, an unsubsidized loan, a Stafford Loan, Perkins Loan, Parent PLUS Loan, or Graduate PLUS Loan. All loans guaranteed by the federal government discharge on the death of the student borrower. In the case of a Parent PLUS Loan, if the parent(s) dies, the loan discharges even if the student is still alive.

The situation isn't so simple for a private student loan. If you have a cosigner in any state, that cosigner is liable. If you live in a community property state that isn't California, and the loan was taken out after you were married, the spouse may be liable for the loan even though you have died. Some private lenders will as a matter of policy discharge your student loan on your death. Some student loan agreements provide for death discharge. 

It's prudent to check to see if your private loans will be discharged upon death. If not, you may want to try to get a release of the cosigner, refinance without the cosigner, and/or buy life insurance to protect the cosigner. If your spouse (in most community property states) or your estate will be liable, using life insurance can also protect your spouse and descendants from suffering due to debt collectors pursuing your student loan. 

Written By:

Attorney John Coble


John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

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