What happens to student loans after death?


By Melanie Lockert

Student loans can be a huge stressor in life. But did you know they can also be a pain in death, too? Of course, no one likes to think of their own death, but if you’re a student loan borrower, you should know who is responsible for your student loans after you die.

You may think student loan debt magically goes away when you die, but that is not always the case. Depending on the type of student loans a borrower has, the lender could go after the family for the remaining balance.

A real life nightmare

Last year, Marcia DeOliveira-Longinetti received the devastating news that her 23-year old son was murdered. While dealing with this untimely and unfortunate event — and all the tasks that go along with it, like arranging a funeral — she also had to deal with her late son’s student loans.

She received word that his federal student loans would be discharged. The student loans that he had from New Jersey’s Student Loan Program were an entirely different story.

DeOliveira-Longinetti had co-signed the loans and was still on the hook for the remaining balance. Not only was she mourning the loss of her son, but was now responsible for her son’s student loan debt. (Related: student loans' effect on credit scores.)

As of July 2016, she has made 18 student loan payments. However, if a new bill gets approved, DeOliveira-Longinetti may find some relief.

In October 2016, the New Jersey State Senate voted on a bill that would ensure that the state’s student loan agency would forgive the remaining student loan debt for borrowers who are deceased or disabled.

The bill was approved by a unanimous vote — 34-0, and is now awaiting the Governor's response to sign or veto the bill. Though there may be some relief in sight if the bill is approved, it only affects those under the New Jersey’s state student loan agency. But what about everyone else?

Who is responsible for my student loans after I die?

Let’s start with some good news. Federal student loans, which are administered by the U.S. Department of Education do have a death discharge.

In other words, if the student loan borrower dies the remaining balance on the loans will be discharged by the federal government.

To do this, a family member will need to provide proof of death through a death certificate.

For private student loan borrowers, it’s not so clear-cut and depends very much on the lender.

Private student lenders are private entities — each of which has their own terms and regulations.

Some private lenders may grant a death discharge, but it may be difficult if the loan has a co-signer, which many private student loans have.

According to a CFPB report, as of 2011 90 percent of new private student loans had a co-signer. Co-signers are legally responsible for the loan if the primary borrower is unable to pay — and in this case, passes away.

If you are married — and took out private student loans during the marriage and lived in a community property state — your spouse may be responsible for your debt when you die. If you took out private student loans before the marriage, your spouse is not liable for the loan, though the lender may come after your estate or joint accounts to repay the debt.

What can you do?

All of this news can be pretty stressful, especially if you think that all student loans die with you. So what can you do?

To start, contact your lender and ask if they have a death discharge policy. You want to be fully aware of what policies they may have in place.

If you have private student loans with a co-signer, you can try and opt for co-signer release. Through co-signer release, you can remove the co-signer from any responsibility to repay your loan.

Typically, you must prove that your income is sufficient to handle the loan on your own. Unfortunately, the CFPB also reports that 90 percent of private student loan borrowers were rejected for co-signer release.

Lastly, another option to consider is term life insurance. As a student loan borrower, you can purchase a term life insurance policy for a set term to align with your amount owed and repayment schedule.

For example, if you have $100,000 in debt and have a 10-year repayment period, you can get a 10-year policy for at least $100,000. This way, if anything happens to you, your parents or spouse can be the beneficiary and use the life insurance money to pay off debt.

If you’re a federal student loan borrower, this is unnecessary. But if you have a co-signer on your private student loans or your lender doesn’t have a death discharge in place, it may save your loved ones some financial stress.

While thinking of your demise can be morbid, if you have student loans, you want to know who is responsible for your debt after you die so you can come up with a plan now. 

Additional Sources

About the Author

Melanie Lockert is a freelance writer who has written extensively about personal finance with a focus on debt. Her work has appeared on Credit Karma, Student Loan Hero and Business Insider, among others.

Written on October 27, 2016

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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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