What Happens To Your Parents’ Loans
Federal direct PLUS loans will be discharged if a parent borrower or student for which the PLUS loan was taken out dies. Proof of death must be submitted to the servicer in the form of an original or copy of the death certificate.
If you have a private parent loan, contact your lender to find out its policy.
Consider A Cosigner Release
Many private lenders offer the ability to release a cosigner from a deceased borrowers student loan debt after a certain number of payments are made, usually over the course of two to three years, according to Farrington. Keep in mind that the chief borrower must request the releaseand, of course, that request cant be made after the borrower dies.
What Happens To Student Loans When You Die And Are Married
Federal student loans are discharged after submitting appropriate documentation upon death, regardless of marital status. If your spouse cosigned your private loans, their obligation to repay them after your death would be determined by the lender and where you live.
You might be responsible for repaying a deceased spouses private student loans if you live in a community property stateeven if you didnt cosign. In community property states, debts taken out after the marriage are owed by both spouses, even if only one spouse is listed as the borrower.
If the debts were taken out before the marriage by one spouse, then the surviving spouse may have no responsibility for them, even if they live in a community property state. Whether those debts get attached to the deceased persons estate or forgiven depends on the lender.
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What Happens To Your Home If Youve Taken Out Equity Release
Equity release lets you access the value tied up in your home without having to sell it. You can carry on living in the property and the loan is repaid when you:
- Move into care
- Sell the property
A lifetime mortgage is the most popular form of equity release and will usually be paid back via the sale of the property when you die.
However, if there are other funds available, it doesnt have to be done this way, as long as the mortgage is paid back somehow, it can come out of other savings or assets.
Home reversion is another form of equity release, where you sell part of your property to the equity release provider
- The home must be sold as that company owns a share of it
- The sale will likely need to take place shortly after death
- Your loved ones have responsibility for clearing out the house so that it can be sold by the provider
Read more about how equity release works and the pitfalls to avoid in our Guide to Equity release.
This Is What Happens To Student Loan Debt When You Die
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When a student loan bill is high, its tempting to pay only the minimum payment. In fact, when people need more cash, they may choose to refinance their student loans over a longer term.
This usually reduces the monthly bill but means more interest incurred over time. If the borrower only makes minimum payments, they may die before they fully pay off their loan.
Jump ahead to these sections:
Refinancing isnt the only reason for unpaid student loan debt at the time of death. There may have been an accident or an untimely death. Whatever the case, its important to know what actually happens to student loans when you die.
Post-planning tip: If you are the executor for a deceased loved one, handling their unfinished business can be overwhelming without a way to organize your process. We have a post-loss checklist that will help you ensure that your loved one’s family, estate, and other affairs are taken care of.
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What Can You Do
Each private lender has their own way of dealing with student loan discharge, but you can still prepare yourself and safeguard those around you from carrying your financial burden by doing the following:
Check out the terms: The first thing you can do is look at your promissory note, since this will give you a better idea of how the lender deals with these cases. The promissory note is the contract that contains all of the details of the loan which you agreed to, including the total amount, interest rate, and repayment terms.
Check the note, and see what it says about what would happen should the student pass away, says Mayotte. If this isnt stipulated, or if you cant find your promissory note, you can always contact the lender to obtain this information directly.
Consider a life insurance policy: If you have private student loans that were issued before 2018, then life insurance is something you could look into. Life insurance policies, particularly term policies, cost next to nothing, especially for a young individual who is relatively healthy.
David Gastwirth, a senior insurance strategist at American Business, a life insurance brokerage firm, says that life insurance can serve as a safety net when taking out student loans to protect the borrowers estate, co-signer, or spouse in case the student dies while the loan is still outstanding.
Lender And Bonus Disclosure
All rates listed represent APR range. Commonbond: If you refinance over $100,000 through this site, $500 of the cash bonus listed above is provided directly by Student Loan Planner.
CommonBond Disclosures: Refinancing
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC , NMLS Consumer Access. 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. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates 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 0.15% effective Jan 1, 2021 and may increase after consummation.
CommonBond Disclosures: Private, In-School Loans
Student Loan Planner® Disclosures
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Lenders May Come To The Estate For Payment
A student loan company has the legal right to inquire with the estate of the deceased in order to receive payment for student loans. If the assets of the estate are greater than the debts, the estate may owe payment of the student loan debt.
The financial institution may be willing to negotiate a lower payment than the total amount owed with the executor or administrator of the estate. Consider your student loan debt in making your estate plan – unresolved debt could decrease the amount inherited by your heirs.
Student Loan Planner Disclosures
Upon disbursement of a qualifying loan, the borrower must notify Student Loan Planner® that a qualifying loan was refinanced through the site, as the lender does not share the names or contact information of borrowers. Borrowers must complete the Refinance Bonus Request form to claim a bonus offer. Student Loan Planner® will confirm loan eligibility and, upon confirmation of a qualifying refinance, will send via email a $500 e-gift card within 14 business days following the last day of the month in which the qualifying loan was confirmed eligible by Student Loan Planner®. If a borrower does not claim the Student Loan Planner® bonus within six months of the loan disbursement, the borrower forfeits their right to claim said bonus. The bonus amount will depend on the total loan amount disbursed. This offer is not valid for borrowers who have previously received a bonus from Student Loan Planner®.
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Are Private Student Loans Discharged If A Student Dies
For private loans, things can get a little complicated, since there can be several outcomes depending on the year the loan was issued, whether there is a co-signer in place, and the rules established by the lender.
The problem with private loans is that every single loan product is different, says Mayotte. Historically, for a lot of private loans, the borrowers estate or their co-signer, if there was one, would often still be left on the hook.
Thankfully, things have changed. In 2018, Congress updated the Truth in Lending Act the federal law that requires consumer disclosures from creditors and lenders, to say that if you die lenders must release both the co-signer and your estate from any financial obligations related to student loan debt.
However, Adam Minsky, a Massachusetts-based attorney who specializes in student loan law, points out that this only applies to private loans that were originated after the amendment went into effect in 2018. Older private loans are not subject to this requirement, he says.
This means that if you took out a private student loan in 2015, and have a co-signer, that person could still be liable for that debt if you die. Minsky also says that depending on the states law, it may be possible for a student loan creditor to go after the deceased borrowers estate if the loan was issued prior to the amendment.
Find Your Loan Servicer
If youre not sure who your loan servicer is, that can make it difficult for your family to handle your estate if you die.
If you have federal student loans, you can find your loan servicer by calling the Federal Student Aid Information Center at 433-3243. You can also use your Federal Student Aid ID to log into the National Student Loan Data System and see what loans exist under your name.
If you have private student loans, you can determine what loans you have under your name and who the lender is by looking up your free credit report at AnnualCreditReport.com.
Once you find your loan servicer, write down your account number and loan servicers contact information and save it alongside your important documents, like your passport or birth certificate.
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If Your Parents Are Helping Out
The same protections are in place for Parent PLUS loans. If your parents take out that type of loan, you bear no responsibility for paying back the loan. If your parent should pass away with a balance still due, the government treats it the same as regular student loans and it’s discharged. If you’re the one to die, the loan is also forgiven.
It used to be that the IRS treated these debt cancellations as taxable income, but President Trump’s Tax Cuts And Jobs Act, which went into effect in 2018, changed things. Now if a student passes away, or suffers a life-altering disability, their student loan debt is forgiven without any tax consequences. It’s worth noting, however, that the provision is set to discontinue in 2025.
Student Loans With Cosigners
If you cosigned for a private student loan and the other cosigner dies, youre most likely on the hook to pay off the debt. By cosigning the loan, youre legally responsible for whatever money is owed, so while the main borrower is no longer with us, the debt still is.
Cosigning on a loan is where many of the horror stories around loan repayment after death come from, Brennan says.
One of those potential horror stories: Sometimes, the entire balance of a student loan is due once a cosigner dies, according to Dvorkin. In other words, the lender wont allow the remaining debt to be paid off over time.
If youre a cosigner who has been left with student loan debt, consider finding out whether the lender offers any programs that can help ease the financial burden.
In the case of a federal student loan, a cosigner is not held liable for any post-death debt.
How Is Private Student Loan Debt Handled When You Die
Unlike federal student loans, there are no universal rules for how private lenders handle student loan debt after death. It depends on the lenderâs policies for the discharge of student loans after death. Private loansâ terms vary significantly from lender to lender. To find out what happens to student loans after a student/borrower dies, you need to check your loan terms. Carefully read the terms of your loan agreement or loan servicerâs policy documents related to death discharge.
If you took out private student loans on your own, they will probably be forgiven. But, again, ask your loan servicer about its policy to find out if your particular loan will be eliminated. A private student loan that has a co-signer might not be discharged. In this situation, your parent or another co-signer might have to repay the loan because it wonât be discharged.
Several private lenders offer student loan death discharges. These lenders include but arenât limited to Sallie Mae and SoFi. But some private lenders donât offer discharges after you die.
Private Student Loan Cancellation
There is no law requiring lenders to cancel private student loans upon the death of the borrower.
About half of private student loan programs offer death discharges that are similar to the discharges on federal student loans. If the primary borrower dies, the private student loan is cancelled and the cosigner is not expected to repay the debt.
Half of private student loan programs do not offer death discharges. If the borrower dies, the lender will charge the debt against the borrowers estate. The cosigner may become responsible for repaying the remaining debt after the estate is settled.
However, new loans taken out after November 20, 2018 are automatically eligible for cosigner release if the student borrower dies. The Economic Growth, Regulatory Relief and Consumer Protection Act
For loans extended before November 20, 2018, cosigners should ask about the lenders compassionate review process. If the call center is confused, call the lender directly and ask to speak to the lenders ombudsman. Lenders are more likely to forgive the debt when the borrower was killed in action while serving in the U.S. Armed Forces or as a first responder. A private lender is also more likely to forgive the debt when the cosigner is clearly incapable of repaying the debt or when news media are involved.
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What Happens To Cosigners
In some cases, what happens to your student loans at death depends on whether you needed a cosigner in order to get the loan in the first place. With most federal loans, cosigners aren’t even required, so the question is moot. Just about the only federal loan that can involve a cosigner is a direct PLUS loan, and even in that case, the federal government discharges the loan even if there’s a cosigner on the account.
With private loans, the private lender again can decide how to handle the cosigner situation. From a purely contractual point of view, a cosigner is jointly responsible for repaying the debt for the original borrower, even in the event of the borrower’s death. Absent language to the contrary in the loan document, the cosigner will still be on the hook for repaying the loan if the original borrower dies. However, some private lenders acknowledge the difficulties involved in handling student loans this way and choose instead to automatically discharge the cosigner’s obligation after the original borrower’s death.
Will A Discharge Create A Tax Bill
Unlike other student loan forgiveness programs, death discharges donât create a tax bill. Student debt discharged due to death is exempt from income taxes . And until 2025, this provision applies to all federal and private student loans. But if youâre concerned about debt forgiveness tax consequences, you should consider contacting the Internal Revenue Service or a tax professional.
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How To Tell Us
You can email us or if a current student dies while they are getting Student Loan, Student Allowance or any other payments from us.
If the student has a Student Loan, you need to send us a copy of the death certificate. This can be done by either:
- logging in to Connectand uploading it, or
We’ll send this to Inland Revenue so they can consider writing off the balance of the Student Loan. You will not need to send this if they do not have a Student Loan.
How To Notify A Private Loan Provider Of A Borrowers Death
Contact the lender to discuss your options for discharge due to the borrowers death. The process can vary by lender. Similar to the discharge of federal loans, you will need to provide a death certificate or other documentation.
You might be able to upload the required documentation online or be asked to mail it in.
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A Spouses Student Loans
Generally, a living spouse will not be held legally responsible for repaying student loans that belonged to the deceased spouse. However, there are some exceptions, such as when the spouse has co-signed the loan.
A spouse might also be required to repay a deceased partners private student loans if they reside in a community property state. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In community property states, the surviving spouse might have to use community property or shared assets to repay the deceased spouses student loans.