While it may feel like it, student loan debt likely won’t follow you to the grave. Most student loans die with the borrower. That’s because the U.S. Department of Education owns or guarantees nearly 93% of all student debt, and it forgives or discharges federal student loan debt after the loan servicer gets a death certificate.
On the other hand, private lenders don’t have an administrative discharge process for private student loans when the borrower or cosigner dies. So the remaining balance will still be owed, and the lender may go after the borrower’s estate, cosigner, or surviving spouse, depending on state law.
If you pass away with federal student loans, the debt won’t be passed on to anyone else, not even your spouse or parents. The loan servicer will discharge your federal student loan, as well as any Parent PLUS loans taken out in your name, upon receiving proper documentation of your death.
But it’s vital to understand that this applies specifically to federal student loans. Other types of debt may not be discharged upon death and could potentially be inherited by next of kin. Make sure to be aware of the differences to avoid leaving a financial burden on your loved ones.
To get a death discharge, a family member, spouse, or another person you appoint to handle your affairs must submit proof of death to your student loan servicer. That can be an original death certificate, a certified copy of the death certificate, or a copy of one of those documents.
Private student loans may not be forgiven at death
Whether your private student loans will be forgiven depends on the lender’s policy. Many private lenders write off student loans upon the death of the borrower. But if there’s a cosigner, they may go after the cosigner to recover the loan balance, so long as they’re legally allowed to do so.
After a change in the law in 2018, private lenders must release cosigners if the primary borrower dies.
To find out what’ll happen to your loan when you die, check the loan terms in your promissory note or speak with your servicer.
You won’t get a tax bill
The borrower’s death used to trigger a tax bill from the IRS. But the Tax Cuts and Jobs Act of 2017 changed that temporarily by including a provision in the law that made discharge due to death and other student loan discharges and cancellation exempt from taxes.
The Act ends in 2025 unless lawmakers renew it.
You can't inherit student loan debt
In general, student loan debt is not inheritable and does not transfer to a spouse, child, or other loved one upon the borrower’s death. The only exception is if the loan was cosigned. In that case, the cosigner may find themselves responsible for repaying what’s left. But for the most part, this type of debt stays put.
Does student loan debt transfer to a spouse after death?
Neither federal nor private student loan debt automatically transfers to your spouse when you die. But your spouse may be responsible for the debt if you live in a community property state like Arizona, California, or Wisconsin and took out loans during your marriage.
Options to deal with student loan debt before you die
During the pandemic, the White House froze payments and fixed interest rates to zero for most federal student loan borrowers. It also overhauled its student loan forgiveness programs, which has led to the Education Department canceling over $40 billion in federal student loan debt.
When everything’s said and done, it’s possible that your loans may be forgiven or a lot closer to being forgiven, depending on the type of loan you have.
While you wait for the department to update you on where you stand with loan forgiveness, here are other things you can do to ease the burden of your student loan debt.
Move to an income-driven repayment plan. IDR plans cap monthly payments on your federal student loans at 10-20% of your discretionary income and writes off your remaining balance after 20-25 years.
Request deferment or forbearance. If you need to skip a few payments to pay off personal loans or credit card debt, ask your servicer for a deferment or forbearance. These short-term breaks last a few months at a time. Keep in mind that, at some point, you’ll run out of deferment and forbearance time.
Consider refinancing. If you have a good credit score and enough income to cover your other debts, refinancing can help you get a lower interest rate and longer repayment term, both of which can make your monthly payments more affordable. It also can help you remove a cosigner from your loan. Use an online marketplace like Credible to shop with multiple lenders simultaneously without doing a hard pull of your credit report.
Death is never a comfortable subject, but if you have significant private student debt, it’s crucial to prepare for the worst and protect loved ones from carrying your financial burden.
One way to do that is to refinance loans without a death discharge clause into a new loan with one.
If student loan refinancing isn’t an option, ask your lender about its cosigner release policy. Lenders like Sallie Mae and SoFi will remove cosigners from the loan after payments have been made for at least 12 straight months.
If all else fails, look into getting a term life insurance policy that’s at least equal to your loan balance.