A reader asked us a question: What happens to student loans when you die?
Question: I graduated from college in 2003, with over $50,000 in student loans. Right after graduation, I was offered the opportunity to consolidate them at 3% interest, paying less than $300 monthly with a state-managed higher education student financial-aid program.
Answer: Federal student loans are cancelled upon the death of the borrower and are not charged against the borrower’s estate. Federal Parent PLUS loans are also discharged upon the death of the student on whose behalf the parent borrowed.To receive a death discharge, the surviving spouse or other family member should send a certified copy of the death certificate or a clear photocopy to the loan servicer.
Switching the federal student loans into an income-driven repayment plan might also provide some financial relief, since it will base the monthly loan payment on a percentage of the borrower’s discretionary income, as opposed to the amount they owe. Even if the spouse didn’t co-sign the loan, the spouse may be responsible for the debt if they live in a community property state and the private student loan was borrowed during the marriage. The spouse is not responsible for any private student loans borrowed before the marriage unless they co-signed the loans.
Lenders are most likely to forgive private student loans if the borrower was killed while in service for the U.S. Armed Forces or as a first responder. If a lender doesn’t offer a death discharge on their private student loans, consider getting a term life insurance policy on the borrower to protect the borrower’s spouse against the borrower’s death. The life insurance policy should have a face value equal to the amount of debt and a term equal to the repayment term of the loan.
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