Few things are scarier and more defeating than looking at your student loan balance and knowing you'll never pay your college debt before you die. You don't want to die and leave your spouse or children stuck having to pay your student loan debt. Thankfully, most Americans will see their student loans forgiven via a discharge due to death. Here's what you need to know about your student loan debt and death.
What happens to federal student loans when you die?
Unlike a mortgage or car loan, the U.S. Department of Education forgives federal student loan debt at the borrower's death by issuing a "discharge due to death".
Your entire federal student loan debt will be forgiven when you die. That includes:
- Direct Loans
- Direct Consolidation Loans
- Parent Plus Loans (when the parent dies and when the student dies)
- Federal Family Education Loans (FFEL)
- Federal Perkins Loans
- Stafford Loans
Although your federal student loan debt doesn't go away after 7 years, neither your surviving spouse nor your children will be responsible for your loans when you die. This loan cancellation at death is why I rarely advise student loan borrowers to refinance their federal student loans with a private lender like SoFi.
You can find out what type of loans you have by visiting the Federal Student Aid website and checking your credit report. The FSA website will show you all of your federal student loans. Any student loan listed on your credit report that's not listed on the FSA website is likely a private student loan.
How to get a "death discharge" for federal student loan debt?
The federal government makes it really easy to get the deceased borrower's remaining debt forgiven.
To get federal student loan forgiveness due to death, a surviving spouse or family member needs to send proof of death to each loan servicer — the company that manages loans and repayment — the deceased had federal student loans with.
Proof of death includes:
- the original death certificate
- a certified copy of the death certificate or
- an accurate and complete photocopy of the death certificate.
What happens to private student loans when you die?
Your lender's policies will determine what happens to your private loan debt when you die. For instance, Sallie Mae will discharge student loans if the borrower dies. But other lender's policies may keep collecting from the cosigner if the primary borrower dies.
You can find your lender's policies for a loan discharge by reviewing the promissory note for the loan terms. In my experience, here's what happens to private student loans when you die:
- The loans will be placed into automatic default
- The entire loan balance will become due
- The private lender will want to collect on its investment (the loan)
So after the death of the borrower, the private lender may still try and collect the entire balance from the deceased borrower's estate (probate).
- Can you inherit student loan debt? You cannot inherit student loan debt. When your parent dies, their student loan debt will not be transferred to you. Instead, their federal student loan debt will go away. However, their private student loan debt may try to recover from the assets your parent leaves for you.
- What happens to my Navient loan if I die? Navient student loans aren't automatically forgiven when you die. If Navient has your federal student loans, then your federal loans will be forgiven. But if you have private student loans with Navient, then your loan debt may go away, but your cosigner will still be responsible for the remaining loan payments. This is another reason why you should know your rights before you cosign a loan.
What to do if you have cosigned student loans?
Here are three options to protect your cosigner from being stuck with your student loan debt:
- Cosigner release: Each lender has its own criteria you'll need to meet before they'll grant a cosigner release. Typically, you'll need to make several consecutive on-time payments for the full amount and show that you have the income to afford the payments on your own.
- Student loan refinancing: If your lender doesn't offer a cosigner release, refinancing your private loans with a new lender that does offer a clear path towards cosigner release is a solution. Note: you'll need a blemish-free credit report to get a great interest rate without a cosigner.
- Get life insurance: If If you don't want your loved ones to be stuck with your private student loans, get a term life insurance policy or some other type of insurance specifically to repay your remaining debt. The beneficiary will get money to pay back your student loan creditors.
Does student loan debt transfer to my spouse after death?
Neither federal student loan debt nor private student loan debt automatically transfers to your spouse when you die.
As I shared above, federal student loan debt goes away when the borrower dies.
On the other hand, private student loans typically check to see if the deceased borrower has an estate with assets. If there are assets, the private lender will first try to collect to repay the student debt.
After that, if a balance remains, the lender will turn to the cosigner to keep making the monthly payments.
And if there is no cosigner, the lender may turn to your spouse, but only if two things are true.
First, you must live in a community property state:
- Alaska (optional community property)
- New Mexico
Second, the loans typically must have been borrowed during the marriage. Your spouse usually isn't liable for student loans you borrowed before you married.
What happens to student loans when you die and are married? What happens to your student loans when you die and are married depends on the type of loan you borrowed. Federal student loan debt will go away when you die. But any private student loans you borrowed may seek money from your estate or can go after your spouse if they cosigned your loans.
Is my spouse responsible for my student loans if I die? Usually, your spouse isn't responsible for your students when you die. Federal student loan debt goes away when the borrower dies. Private student loans can, however, seek payment from your estate. So if you cosigned or borrowed a private loan, consider sheltering your assets in a trust or getting an insurance policy to help pay for the loans.
Death, student loans, and taxes
Before 2017, student loans that were discharged due to death or total and permanent disability were subject to income taxes. As a result, your spouse or cosigner could be faced with a huge tax bill.
That changed when Congress passed the Tax Cuts and Job Act. The Act of 2017 made student loan discharge due to death non-taxable. In other words, the IRS no longer had to treat student loans that were discharged due to death or disability as taxable income.
And if that were enough, in March 2021, President Joe Biden made all forms of student loan forgiveness tax-free through 2025.