The answer to the question of what happens to your student loan when you die depends on the type of loan you have, whether it is federal or private.
It seems a long time ago when we waited for the U.S. Supreme Court decision on the legality and validity of Joe Biden’s student loan forgiveness. Unfortunately, that date came with not very good news. And now that many will have to resume their payments, there comes a question on the minds of many borrowers: what happens to your student loan if you die?
According to a 2019 survey by Haven Life Insurance Agency, 73% of student loan borrowers didn’t know how their debt would be handled if they died. And unsurprisingly, in 2020, inquiries on this topic skyrocketed after many people wondered what would have happened to their student loan if they contracted COVID-19 and died.
The threat of the coronavirus has diminished, but the question remains. And here’s the answer: it depends on the type of student loan you have.
What happens to my federal student loans if I die?
Simply put, the U.S. Department of Education (ED) will cancel the debt if the federal student loan holder dies.
According to Forbes, a family or spouse can apply for a loan discharge if the deceased borrower has any of the following federal student loans:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS loans
- Direct Consolidation Loans.
The same applies to now-discontinued Perkins Loan and Federal Family Education Loan (FFEL) debts that some borrowers may still have outstanding, according to GoodRx Health.
Parent PLUS loans will also be discharged by ED if the parent borrower or the student to whom the parent provided the loan dies. Because only one parent can be responsible for a parent PLUS loan, a surviving parent not listed on the loan will not be responsible for repaying the loan.
In order for a loan to be cancelled, acceptable proof of death must be provided to the student loan servicer. A death certificate or certified copy of the death certificate will be accepted as proof. ED clarifies that it is a cancellation, because the term a forgiven loan is used to indicate the elimination of a debt due to loss of a job or inability to pay.
What happens to my private student loans if I die?
Unlike federal student loans, private student loans are a different story. Terms and conditions vary from lender to lender.
In the event of the death of the borrower or student loan holder, the lender’s agreement and policy should be thoroughly verified before assuming that a discharge will apply. There is absolutely no guarantee that a private lender will discharge the debt of a decedent.
Keep in mind that a private lender is looking for interest earnings and will be unlikely to be inclined to forgive the debt. Although it depends on the company, most will seek the borrower’s estate or, in the case of a cosigned loan, they may require that person to settle the deceased borrower’s debt.