What Happens to Student Loans When You Die?

What Happens to Student Loans When You Die?

When a student with federal loans passes away, their family can apply for loan discharge due to death, resulting in the forgiveness of the remaining balance. This applies to various federal student loans, including Direct subsidized and unsubsidized loans.

Parent PLUS loans, taken out by parents for their child's undergraduate education, are discharged if either the parent borrower or the student on whose behalf the loan was taken dies. Private student loans, however, vary in their handling of such situations, and terms depend on the lender.

Some private lenders, like Ascent, College Ave, Earnest, RISLA, Sallie Mae, and SoFi, offer discharge due to death. It's crucial for borrowers to check their loan agreements and lender policies.

Additionally, the article suggests considering life insurance and finding the loan servicer's information to facilitate the handling of the estate in case of the borrower's death. Refinancing federal loans may result in the loss of federal benefits, and discharged loans due to death or disability are not taxable under current rules.

Are Student Loans Forgiven if You Die?

Yes, student loans are typically forgiven (discharged) if the borrower dies. Federal student loans are generally discharged upon the borrower's death, with the requirement of providing proof of death. Private student loans may vary in their forgiveness policies, and the fate of private loans depends on the lender's specific terms. It's important for borrowers and their families to be aware of these policies and communicate with the loan servicer or lender to ensure a smooth process in the event of the borrower's passing.

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How Do I Report a Death to a Student Loan Servicer?

To report a death to a student loan servicer, initiate the process by contacting the lender and following their established procedures. Here is the detailed information:

Contact the Lender

Use the provided contact information from letters or communication received from the student loan servicer. Typically, this information can be found in correspondence related to the loan.

Call the Specified Number

Dial the designated phone number and be prepared to provide account details such as the loan account number. This facilitates easy identification of the account during the conversation with the customer service representative.

Inform Customer Service of the Death

Clearly communicate to the representative that the borrower has passed away. Provide details of the death, including the date, to initiate the process.

Submit Required Documentation

The loan servicer will likely request a copy of the death certificate. Clarify the preferred method of submission, whether it's through mail or email.

Document the Call

Keep a record of the details of the phone call, including the name of the representative you spoke with and the date of the conversation. This documentation may be useful for reference in the future.

Understand Deadlines and Processes

Inquire about the deadline for submitting necessary paperwork and obtain information on the discharge process. Understand the timeline for receiving a response regarding the discharge, and inquire about potential scenarios if the discharge is denied.

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What You Can Do to Protect Your Family?

To safeguard your family or co-signer from the burden of repaying student loans in the event of your death, it's essential to be aware of the loan discharge policies. Federal law, under the Tax Cuts and Jobs Act, mandates that private lenders must release co-signers for loans obtained after November 20, 2018, in the event of the primary borrower's death.

Additionally, considering suitable life insurance coverage can provide financial protection for your family in case you have private loans that do not discharge upon your death.

When reporting a death to a student loan servicer, contact the lender, provide account details, and be prepared to submit a copy of the death certificate. Understanding the discharge policies of your loans, exploring refinancing options, and securing life insurance can collectively contribute to protecting your family from potential student loan obligations.

What Happens to Private Student Loans When You Die?

When it comes to the fate of private student loans after the borrower's demise, the treatment of the remaining debt varies among lenders. Approximately 7.3% of student loan debt is attributed to private loans, and how these debts are handled post-borrower's death hinges largely on the lender's policy. Some lenders, for Best Private Student Loans in 2023, offering numerous options such as Sofi and Earnest, choose to discharge the debt entirely upon the borrower's passing, providing a sense of relief for surviving family members.

However, other lenders might pursue the outstanding debt by billing the estate of the deceased borrower. Beyond this, there exist potential tax implications associated with discharged debt that the estate assumes responsibility for, while co-signers liability could also be contingent on the lender's specific policies, especially for loans initiated before November 20, 2018. It's pivotal to meticulously review the terms and conditions of private student loans to comprehend the potential implications for surviving relatives and the estate's management.

What Happens to Co-signed Loans or a Spouse’s Loans?

When dealing with co-signed student loans or loans belonging to a spouse, the resolution is contingent on the lender's policies. In some instances, if the primary borrower passes away, the co-signer may still be liable, while in other cases, forgiveness may apply as stated in the borrower's promissory note.

For private loans taken before November 20, 2018, co-signers could be responsible for the remaining balance if the deceased's estate cannot cover it. Similarly, a spouse might be required to make payments, especially if the loans were established during the marriage and the couple lives in a community property state. It's crucial to review the specific terms of the loans to understand the implications for co-signers and spouses in the event of the borrower's death.