What Happens to Student Loan Debt When a Borrower Dies?

According to a recent survey, 70% of student loan borrowers don’t know how death would affect their student loan debt. That makes sense since death isn’t a topic most people want to think about. But it’s important to know how your student loans will be handled if you die. Unfortunately, there’s not a one-size-fits-all answer. It will depend on the type of student loan you have (a federal student loan or private loan), whether anyone has co-signed the loan, and if you live in a community property state. These all factor into a discharge due to death.

In this article, we’ll focus on whether federal student loans or private student loans will be discharged upon the death of the borrower. You’ll also get answers about whether a loan co-signer or your spouse will be responsible for your student loan debt after your death. 

How Is Federal Student Loan Debt Handled When You Die?

If you die before paying your student loans back in full, the type of loan you have will be one of the most important factors in determining how it’s handled. If you’re the primary borrower of federal student loans, your loans will be discharged (forgiven) by the federal government when you pass away. This is also known as a death discharge. This means that there will be a zero balance. No one, including your family and 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 and federal direct consolidation loans. Your estate won’t have to pay your loan payments or balance. 

After you die someone will have to notify 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 to the student loan servicer. This is often done by submitting a copy of the death certificate to the loan servicer. 

Parent Plus Loans

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 federal loans, to have a Parent PLUS Loan discharged after death, a family member or other appointed representative will have to give the loan servicer a death certificate. 

It’s important to know that only one parent can be the primary borrower for a Parent PLUS Loan. This means that both of a student’s parents can’t sign for the student’s loan. If the parent who isn’t the listed borrower dies, the surviving borrowing parent will still have to repay the student loan.

Also if a PLUS loan applicant has an endorser (a co-borrower or co-signer), the endorser is jointly responsible to repay the loan if the primary borrower doesn’t. And with Parent PLUS Loans and Graduate PLUS loans, an endorser isn’t obligated to repay the loan if it's discharged because the primary borrower dies or if the child on whose behalf the loan was taken out dies.

How Is Private Student Loan Debt Handled When You Die? 

Unlike federal student loans, there are no universal rules for how private lenders handle student loan debt after death. It depends on the lender’s policies for the discharge of student loans after death. Private loans’ terms vary significantly from lender to lender. To find out what happens to student loans after a student/borrower dies, you need to check your loan terms. Carefully read the terms of your loan agreement or loan servicer’s policy documents related to death discharge.

If you took out private student loans on your own, they will probably be forgiven. But, again, ask your loan servicer about its policy to find out if your particular loan(s) will be eliminated. A private student loan that has a co-signer (a parent or someone else) might not be discharged. In this situation, your parent or another co-signer might have to repay the loan because it won’t be discharged. 

Several private lenders offer student loan death discharges. These lenders include but aren’t limited to Sallie Mae and SoFi. But some private lenders don’t offer discharges after you die.

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 November 20, 2018 

If you signed for a private student loan before November 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.

As for private parent loans, contact your lender to find out its policy on loan discharge after the death of a parent borrower or student.

Will a Discharge Create a Tax Bill?

Unlike other student loan forgiveness programs, death discharges don’t 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). And until 2025, this provision applies to all federal and private student loans. But if you’re concerned about debt forgiveness tax consequences, you should consider contacting the Internal Revenue Service (IRS) or a tax professional.

Is a Surviving Spouse Liable for Student Loans?

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 to repay them if you die. There are two exceptions to this: 

1. If your spouse co-signed with you on your private student loan 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, it can significantly impact any debt forgiveness you may have. In community property states, your spouse may be responsible to repay your loans after you die. 

Take Steps To Protect Yourself and Your Loved Ones

Before you die, it's important to talk to your parents, family members, and anyone you designate to handle your financial affairs about your student loans. 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. Open communication helps avoid complications and confusion for your loved ones. It may be an uncomfortable talk, but they need that information.

If you have private student debt, make sure to check your lender’s policies about discharge after death. If they have a discharge policy that doesn’t include your co-signer, check if they offer 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. With a sufficient payout, your estate could cover your remaining debt. This would allow your co-signer to be released from the burden of student loan debt when you die.

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. You’ll also want to consider whether you have a co-signer. If you have a co-signer, you’ll have to refer to your loan documents to see if your loan servicer offers them a death discharge when you die. 

Lastly, if you live in a community property state when you die, it could impact your co-signer’s ability to have the student loans they signed for on your behalf forgiven. While this is an unpleasant topic, it’s necessary to get your affairs in order so that those you leave behind are protected.