What Happens to Your Student Loan Debt When You Die?

There are several types of student loans, but most fall under two basic categories: federal student loans and private student loans. If you die before you’ve paid your loans back in full, the type of loan you have will be an important factor in determining how it’s handled.

What Happens to Your Federal Student Loan Debt When You Die?

If you’re the primary borrower of federal student loans, your loans will be discharged (forgiven) by the U.S. Department of Education when you pass away. This is also known as a death discharge/discharge due to death. This means that there will be a zero balance on your federal student loan(s), and no one, including your family or your estate, will have to repay the student loans after you die.  

This applies to all types of federal student loans (both subsidized or unsubsidized federal loans), including federal Direct Consolidation Loans. 

After you die, someone will have to contact your loan servicer and inform them of your passing. This is often a parent or spouse. Once your estate is opened in probate court, this person must provide proof of death (like a copy of the death certificate) to the student loan servicer. 

What Happens to Parent PLUS Loan Debt When You Die?

If you’re a parent who took out Parent PLUS loans to finance your child’s college education, this debt will be wiped out if you or the student dies. Like other federal loans, a family member or other appointed representative will have to give the loan servicer a copy of the original death certificate to have a Parent PLUS loan discharged. 

It’s important to know that only one parent can be the primary borrower for a Parent PLUS loan. If the parent who isn’t the listed borrower dies, the surviving borrowing parent must continue to make loan repayments.

With Parent PLUS loans and Graduate PLUS loans, an endorser (a co-borrower or co-signer) isn’t obligated to repay the loan if it's discharged after the primary borrower or student dies.

What Happens to Your Private Student Loan Debt When You Die?

Unlike federal student loans, there are no universal rules for how private student loan debt is handled after death The lender’s policies for the discharge of student loans after death will dictate how your loans are handled. Terms for private loans vary significantly from lender to lender. To find out what happens to private student loans after a student/borrower dies, you need to carefully read the terms related to death discharge.

If you took out private student loans on your own, your lender will most likely grant a death discharge. Several private lenders — such as Sallie Mae and SoFi — are known to offer student loan death discharges. But, again, you’ll need to ask your loan servicer about its policy to find out if your particular loan(s) will be eliminated. 

Before November 2018, a private student loan co-signer (such as a parent) was not guaranteed a discharge. Thankfully, due to the Economic Growth, Regulatory Relief, and Consumer Protection Act, this is no longer the case.

What Is the Economic Growth, Regulatory Relief, and Consumer Protection Act?

Changes in federal law now provide discharge relief to private student loan borrowers. Due to added provisions in the Economic Growth, Regulatory Relief, and Consumer Protection Act, student loan lenders must release the co-signer when a student borrower dies if the loan was taken out after Nov. 20, 2018. 

If you signed for a private student loan before Nov. 20, 2018, and your lender doesn’t have an official loan discharge policy, the lender will probably have what’s called a compassionate review process. If this type of review is approved, the lender can still decide to discharge a borrower or co-signer.

Contact your lender to find out its policy on loan discharge after the death of a parent borrower or student.

Will a Discharge Due to Death Create a Tax Bill?

Death discharges do not create a tax bill. Student debt discharged due to death is exempt from income taxes, according to a provision in the Tax Cuts and Jobs Act of 2017. 

This provision applies to all federal and private student loans until 2025. If you’re concerned about debt forgiveness tax consequences, you should consider contacting the Internal Revenue Service (IRS) or a tax professional.

Is the Surviving Spouse Liable for Student Loans after the Death of the Borrower?

Your spouse can be liable for your student loan debts after you die, but only in certain situations. If you took out student loans before you got married, your spouse typically won’t be responsible for paying off the remaining balance if you die.  

There are two exceptions to this: 

1. If your spouse co-signed your private student loan — and your loan was taken out before Nov. 20, 2018 — they will be liable after you pass away.

2. If you and your spouse took out a joint spousal consolidation loan, your spouse will be liable to pay that loan if you pass away.

Currently, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states. If you lived in a community property state at the time of your death and you owed student loan debt, your spouse may be responsible to repay your loans after you die. 

How Do You Prepare Your Loved Ones for a Discharge Due to Death?

Before you die, it's important to talk about your student loans to your parents, family members, and anyone you designate to handle your financial affairs. These people need to know whether you have federal and/or private student loans and who your loan servicer is so they’ll know where to send the death certificate. 

If you have private student debt, make sure to check your lender’s policies about discharge after death. If your lender has a discharge policy that doesn’t include your co-signer, check if it offers a co-signer release that can remove a co-signer from the student loan for good. If your lender doesn’t have this policy, consider refinancing the loan with a private lender that has a co-signer release or policy that includes discharging debt for a co-signer when a student/primary borrower dies.

Also, when comparing private student loan options, take a close look at the lender’s death discharge policy. If possible, find a lender that will discharge you and your co-signer from liability from all student loans when there's a death.

Finally, consider purchasing a larger life insurance policy or looking into student loan refinancing. If you refinance your student loans you could get a co-signer release, which would protect your co-signer in the event of your passing. 

Let’s Summarize...  

How student loan debt is handled when you die depends on several factors. You must look at whether you have federal or private student loans. If you have federal student loans, they will be discharged when you die. If you have a private student loan, it will depend on the lender’s policy. If you have a co-signer, you’ll have to refer to your loan documents to see if your loan terms allow them a death discharge when you die. 

While this is an unpleasant topic, it’s necessary to get your personal finances in order so that your loved ones are protected.