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Do Your Student Loans Die With You?

By Catherine Hodder, Esq. | Legally reviewed by Joseph Fawbush, Esq. | Last updated on

Many Americans use student loans to finance their higher education. And it may take years, even decades, for repayment.

When you die, your property and assets make up your “estate.” But before your family members and loved ones share in your estate, your estate must first pay funeral expenses, lawyer and executor fees, taxes, and debts such as mortgages and credit card balances. But is your student loan included in your debts? Possibly, but it depends on the type of loan and its terms.

Federal Student Loans

You may have subsidized and unsubsidized federal loans backed by the government. These loans have a fixed rate of interest. Subsidized loans are for students with demonstrated financial need. Subsidized loans do not charge interest when you are an undergraduate, and interest may be deferred for a period after graduation. Unsubsidized loans, however, collect interest while in school or during a forbearance period. You can get an unsubsidized loan without demonstrating financial need. They are also available for graduate school.

Borrowers of subsidized and unsubsidized federal student loan debt may have the remaining balance of their debts discharged at death. Your personal representative or executor applies for the loan discharge.

Parent PLUS Loans

The government also backs Parent PLUS loans. In these loans, one parent of the undergraduate student, called the “primary borrower,” is the borrower. If that parent dies, the loan is discharged. If the other parent (not the primary borrower) dies, the loan cannot be discharged.

Additionally, if the student for whom the loan was taken out dies, the loan is discharged. A co-signer or endorser (someone who promises to pay if the parent can’t) does not have to pay if the parent or student dies.

Private Student Loans

If a student borrows from a bank or financial institution, it is a private loan. The loan terms, interest rates, and loan forgiveness policies vary by private lender. Some lenders forgive student loan debt upon death or permanent disability, so check the death discharge policy in the loan agreement.

If you have concerns about having your student loan balance diminishing your estate, you could look into a life insurance policy to pay off your debt or to provide money for your beneficiaries.

Refinancing

Student loan refinancing or consolidation loans are helpful to reduce monthly payments. However, if you refinance your student debt, pay close attention to the new lender’s policy terms. You may inadvertently turn a loan that would discharge at the borrower’s death into one that can’t.

How To Get Student Loans Discharged at Death

Your personal representative or executor must contact the lender or student loan servicer to get a loan discharge. They fill out paperwork with the details and include the proof of death with the original death certificate or a copy of the death certificate.

Student loan borrowers rarely think about death dischargement when applying for loans. However, it is an important consideration when evaluating loans.

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