60 percent of student loan debt holders are expected to pay off their debt in their 40s. With deferments, extended repayment plans, graduate loans, and Parent PLUS loans there are millions of borrowers carrying their loans into their 60s and beyond. While sad, some borrowers die without fully repaying their student debt.
Which begs the question, does their debt just disappear?
It Depends on the Type of Student Loans You Have
Federal Student Loans
If you’re carrying federal student loans when you die, your loans can be discharged if a family member presents a suitable “proof of death” such as a death certificate. This also includes Parent PLUS loans. Since the parent was legally responsible for repaying the loan, the child is not expected to pay on that debt. The balance of the federal loans will be absorbed by the federal government.
Private Student Loans
There is no legal requirement for private lenders to forgive your loans if you die. Each private lender will have its own policy in place for discharging loans in instances of death and disability. Some lenders will consider each instance on a case-by-case basis. Most lenders will attempt to collect on your debt by seeking out a collection from your estate or through your spouse. There are also nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin) with community property laws that require the surviving spouse to take on the debt of the deceased. However, if the loan was taken out before the marriage began, your spouse should be able to argue that they’re not responsible.
If you have a co-signed loan, the full balance of the debt will be transferred to your co-signer. This could prove to be even worse in some cases where the full balance of the loan becomes due immediately upon death. If you’re financially capable of repaying the co-signed yourself, consider applying for a co-signer release to remove your co-signer’s responsibility for the loan.
Take Precautions to Help Your Survivors
Part of being financially responsible is planning your estate upon your death. You should make your family aware of your debtors, such as your federal student loan servicers, so they’ll know who to notify to discharge your debt. A life insurance policy is also a very good idea as it can dramatically help your family pay off your outstanding balance. Dying is bad enough, don’t leave your family wondering what to do about your student loans, too.