When you die, what happens to your student loans depends on the type of loans you have. Namely, whether you have federal student loans or private student loans.
Because your student loan debt is treated differently at death depending on whether the loan is a federal loan or a private loan, it makes sense to talk about each separately. So let's do that now.
What happens to federal student loans when you die?
The U.S. Department of Education forgives federal student loan debt at the borrower's death.
Here's what that means. Let's say you have a Direct Consolidation loan for loans you took out in undergrad. When you die, the loan balance of the Direct Consolidation loan will go away. Neither your surviving spouse nor your children will be responsible for your federal student loan debt.
Click here to read Do Student Loans Go Away After 7 Years?
What happens to Parent Plus Loans when the parent or student dies?
Parent Plus loans are treated a little bit differently.
Parent Plus Loans are discharged when the parent borrower dies.
They're also discharged when the student dies.
Click here to read Student Loan Forgiveness Optiosn for Senior Citizens Entering Retirement
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 a federal student loan forgiveness due to death, all the surviving spouse or family member needs to do is send proof of death to each loan servicer 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?
Precisely what happens to your private loan debt when you die ultimately depends on the individual lender's policies. For instance, Sallie Mae will discharge student loans if the borrower dies. But others will continue to collect from the cosigner if the primary borrower dies.
Unless I have access to the loan terms, my underlying assumption about private student loans is that they will follow the student loan borrower to the grave and beyond.
So after the death of the borrower, the private lender may still try and collect from the deceased borrower's estate.
This is why if you don't want your loved ones to be stuck with your private student loans, you should look into a term life insurance policy or some other type of insurance specifically to repay your remaining debt.
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.
Private student loans, on the other hand, 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:
- 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.