There are only two certainties in life, death and taxes. Although this popular saying is somewhat accurate, it does spark an interesting question, what happens to student loans when you die? Well, it turns out it is a bit of a complex answer, but luckily, there is an answer. However, that answer differs depending on what student loan you’re talking about.
Federal loans are infamous for their protections, and when you die it is no different. Federal loans are discharged when a borrower dies, and thus your debt will not be passed on to your loved ones. To discharge the loan, the servicer will simply need to be presented a death certificate.
Parent PLUS loans are also discharged due to death, but this one gets a little more complicated. As these are federal loans, the loan is discharged once a death certificate is delivered to the loan servicer, and it is discharged if either the parent or the student were to pass away.
Unlike federal loans, private loans are more complex when the borrower dies. If you do not have a cosigner, generally your children or relatives are not going to be on the hook for the loan amount. There is a chance the loan will die with your death certificate, but this will depend on the loaner and the type of agreement. But what if you were married or had a cosigner?
Anyone married after the loan was signed for will generally not be liable for the loan. However, if you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you may be liable. However, for most people, the only way a spouse will be on the hook for student loan debt is if they are a cosigner on the actual loan.
If you have a cosigner, they are going to be in for a tough battle. A cosigner is legally responsible for the debt when the borrower passes away. In this case, the type of loan does not matter, instead the cosigner is directly responsible, and will simply be assigned the full amount of the loan. Also, in some rare cases, when a cosigner or borrower passes on, the loan company can accelerate the repayment. This means a death can trigger a default of the loan with expedited repayment expectations. That is not a situation that anyone wants to put their loved ones or friends in, and thus there are some options for those that have cosigners.
Many borrowers have cosigner release forms that can be signed when the borrower has made a certain number of payments on time. However, this is not always the case, and for those who are stuck, there is at least one option. Many families take out a life insurance policy on the borrower so that if the unforeseen happens, they can take care of the student loan without causing a strain on their finances. If you go down this road, make sure to choose a policy that covers outstanding debt.