What happens to student loans when you die depends primarily on the type of loans you have. Federal loans are more likely to be discharged than private loans in the case of the primary borrower’s death, but some private lenders are adopting government-like policies. Discharge due to death is generally not accessible if the cosigner passes away, however.
Take the time to figure out what happens to your debt when you die because the outstanding balance could be passed onto your family or estate. Here’s what you should consider if…
When it comes to federal student loans, the news is favorable.
If you die with federal student loan debt, you won’t have to worry about it being passed on to anyone else. Once you pass on, you’d be in line to receive a student loan discharge.
To receive this discharge, your survivors need to present an original, certified or copy of a death certificate to your federal loan servicer.
If you have Parent PLUS loans…
Federal Parent PLUS borrowers are also eligible for a death discharge in two scenarios:
- You’re the student and you pass away, cancelling PLUS Loan debt borrowed in your parent’s name
- You’re the parent and your child passes, cancelling the PLUS Loan debt in your name
Parents previously received a 1099-C form from the IRS after their debt was cancelled and, in some cases, had to face a hefty tax bill.
Fortunately, parents of deceased children won’t have to face tax consequences associated with the death discharge of a Parent PLUS loan. The Tax Cuts and Jobs Act of 2017 made student loan discharge due to death non-taxable. And more recently, the student loan stimulus in March 2021 also made all forms of forgiveness tax-free through 2025.
If you’re a Parent or Grad PLUS Loan endorser…
Like a private loan cosigner, a federal loan endorser allows borrowers with adverse credit history to access education funding.
If you endorse a PLUS Loan application and the primary borrower (the parent) dies, the debt would be discharged. The same holds true if you endorsed a Parent PLUS Loan and the parent’s child dies.
Conversely, if you as the endorser pass away, the primary borrower (the parent) would still be responsible for repayment.
If you have private student loans, original or refinanced, things get a bit thornier. Some banks, credit unions and online lenders do offer a death discharge, but not all of them.
Keep in mind that, as with federal loans, discharging private student or parent loans due to death could require your family to supply documentation, such as a death certificate.
|What happens to private student loans when you die?|
|Lender||Discharge if the primary borrower passes||Discharge if the cosigner passes|
Private student loans, including refinanced loans, are more like traditional personal loans. As with these and other types of debt, private lenders might come for your estate when you die, depending on your state’s probate process.
Your family will generally have an easier time fending off debt that was borrowed strictly in your name. Still, ask your private lender about their policy. If it is unclear or if you want more objective advice, you might consider speaking with a certified student loan counselor or lawyer.
If you have a cosigner…
As the table above shows, if your private student loan has a cosigner, you might be in trouble. Your cosigner is typically legally responsible for your debt after you pass away, regardless of the type of loan in question. And, in some cases, cosigned debt repayment can be accelerated.
“The death of the borrower or the cosigner can trigger default,” said Heather Jarvis, a lawyer and student loan expert. “That means the entire balance becomes due immediately, even if the surviving signer has always made payments on time.”
So what should you do if you have cosigned student loans?
If you do have consigned student loans, investigate these three options:
1. Cosigner release: Typically, lenders require you to make on-time payments for a specified period of time and illustrate that you are financially capable of handling payments on your own. Once you’ve done this, you can obtain cosigner release. However, not all lenders offer this option.
2. Student loan refinancing: If you have private education debt with a lender that doesn’t offer a path toward cosigner release, refinancing your student loans could be a solution. Refinancing is a process that pays off your old loans and issues you a new loan. Through refinancing, you could remove your cosigner in a couple of different ways:
- Qualifying on your own, effectively releasing your cosigner when your refinanced loan is originated
- Applying alongside a cosigner (the same or different one) but only with lenders that have clear-cut cosigner release policies that would allow you to send your “guarantor” on their way within a period of months
3. Purchasing life insurance for your child: If you’re a parent cosigner, an insurance policy could net a sum of money to help cover the repayment of cosigned student loans. If you go this route, look into a policy that covers the cost of any outstanding debt. For example, if you’d be on the hook for $50,000, then seeking coverage for at least that amount could be wise. Before plunking down an expensive premium, though, discuss these options with a certified financial professional.
If you acquired student loan debt through marriage and live in one of the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin — your spouse could be liable for your student loans after you die.
This is usually not the case if you took out your student loans before marriage, however. In this case, your spouse would be on the hook only if they are also a cosigner on your private loan, or if you jointly took out a spousal consolidation loan.
More than 7 out of 10 student loan borrowers admit to not knowing how death would affect their debt, according to a 2019 survey by HavenLife.
To be fair, the answer to what happens to student loans when you die isn’t a straightforward one. It depends on a variety of factors, including whether you…
- Have federal or private loans
- Have a cosigner
- Live in a community property state
The best thing you can do to make sure you and your family are protected by understanding your lender’s policy regarding death discharge and reviewing it in depth.
Use the StudentAid.gov website to find your federal student loans and contact your servicers to find out their policies. Also, track down your private loans via old statements or your credit report and ask your lenders the same question: What happens to student loans when you die?
In addition, look into cosigner release and a life insurance policy that could help with any outstanding debt. You can also consider federal loan consolidation or student loan refinancing to simplify your payments and gather all your loans in one place.
Preparing now for what happens to your debt when you die can save your family from financial trouble down the line.
Andrew Pentis contributed to this report.
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|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 4, 2022.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Apr 22, 2021 and may increase after consummation.
4 Important Disclosures for SoFi.
Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
6 Important Disclosures for Navient.
7 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
8 Important Disclosures for PenFed.
Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.