Thinking about your eventual death isn’t fun. But it’s something you need to plan for, especially if you’re one of the 44 million Americans with student loan debt. You want to know what happens to your debt when you die.
What happens to student loans when you die?
Whether or not your student loans pass on to someone else when you die depends on the type of loans you have.
Take the time to figure out when you die what happens to your debt so you can reduce the chance that your loved ones end up bearing the brunt of your debt.
If you have federal student loans
When it comes to federal student loans, the news is pretty good. “Federal student loans are discharged when the borrower dies,” said Jay Fleischman, a student loan lawyer.
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, the federal student debts in your name are discharged. To receive this discharge, your survivors need to present a certified death certificate to the loan servicer.
If you have Parent PLUS Loans
Parent PLUS borrowers are also eligible for a death discharge, since PLUS loans are federal loans.
Fleischman added that for Parent PLUS Loans, it’s the parent — not the student — who is legally obligated to repay the loan. “These loans can be discharged when either the parent or the student dies,” he explained. “Discharged federal student loan obligations won’t pass to your estate, and your heirs won’t have to pay them off.”
Realize, though, that there are tax consequences associated with the death discharge of a Parent PLUS Loan due to the student’s death. Parents receive a 1099-C form from the IRS after the debt is canceled. The remaining debt canceled is treated as taxable income. So parents in this situation could be hit with a large tax bill.
If you have private student loans
If you have private student loans, things get a bit trickier. Some private student loan lenders do offer a death discharge, but not all of them.
Private student loans, including refinanced loans, are more like traditional personal loans. As with other types of debt, private lenders might come for your estate when you die. However, if the loans are only in your name, your children or other relatives aren’t generally considered liable, according to Credit.com.
If you have a cosigner
If your private student loan has a cosigner, which many of them do, you might be in trouble. Your cosigner is 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,” explained Heather Jarvis, a student loan expert. “That means the entire balance becomes due immediately, even if the surviving signer has always made payments on time.”
So what are you to do if you have cosigned student loans? Look into a 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.
In some cases, it makes sense for parent cosigners to purchase a life insurance policy for their child. In the event of death, parents would receive a sum of money to help cover the repayment of cosigned student loans.
If you go this route, look into a life insurance policy that covers the cost of any outstanding debt. For example, if you’d be on the hook for $50,000, then get a life insurance policy for at least that amount or more.
If you’re married
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. In this case, your spouse would be on the hook only if they are also a cosigner.
How to prepare and limit the damage
The answer to what happens to student loans when you die isn’t a straightforward one. It depends on the types of loans you have, the state you live in if you have a cosigner, and many other factors.
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 National Student Loan Data System (NSLDS) to figure out who your servicers are and contact them to find out their policies.
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.
Preparing now can save your family from financial trouble down the line.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 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% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|