No one plans for their student loans to outlive them. We all expect to have paid off loans for college or graduate school long before middle age, let alone within our lifetimes. Most people prefer not to think about the grim topic of death at all.
But all of us should ask the question: “What happens to my student loans if I die?” Adults age 60 and over are the fastest-growing group of student loan borrowers, and 2.8 million Americans in that age group have at least one student loan. And the reality is, regardless of age, none of us can be certain about when our lives will come to an end.
Not knowing what happens to student loans when you die can cause you a lot of anxiety. Will the loan be wiped away? Will the burden fall on your parents or spouse? Will your estate be responsible? The answers can be complex and depend on what kinds of loans you have.
Knowing what happens to your student loans when you die can bring peace of mind to you and your family. It can also help you plan for that eventuality, perhaps by refinancing, saving, or taking out insurance to account for any costs your family could be left with. Regardless of the outcome, knowing the facts is a key jumping off point to taking control of your student debt. Here’s what can happen to your loans in a variety of scenarios.
(And before we dive in, we just want to say that this is an incredibly complex topic that we’re going to try our best to break down. But ultimately, this info is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice. SoFi always recommends that you speak to a professional about your unique situation.)
What Happens to Federal Student Loans?
If you took out student loans from the federal government, these will be discharged when you die . If a parent took out a PLUS loan for you, this will also be discharged if you die or if your parent dies. When a loan is discharged, the balance becomes zero and the government won’t try to collect on the loan. Note that at one point the Internal Revenue Service considered waived loans to be taxable in most cases.
Similarly, on a Parent PLUS Loan, if the student dies, the eliminated debt would have counted as part of the parent’s taxable income, increasing their tax obligations that year. However, that is no longer the case, as of the start of 2018. There is currently no tax burden once loans are discharged as a result of death. However, this is only true until 2025, at which point this tax code expires.
Family or friends would need to provide your loan servicer with documentation to confirm the death, usually an original or copy of your death certificate. They can call your loan servicer to ask about the specific requirements.
You’ll probably want to make sure that loved ones have the information they need now—at a minimum, the name of your loan servicer and, ideally, your loan ID numbers and your Social Security number. The bottom line is: If you have any kind of federal student loan, you don’t need to worry about your relatives being burdened with the debt if you pass away.
What Happens to Private Student Loans?
If you have private student loans, the answer is a bit murkier. Some private lenders will cancel your loans upon your death, but it typically depends on the type of loan and the laws in your state.
Make sure to read your loan agreement very carefully to see what protections your lender offers.
In the case that your lender doesn’t discharge your loans after death, the lender would first try to collect the money from your estate. If you don’t have an estate, they would turn to your student loan cosigner, if you have one.
If there isn’t one, then the lender would likely try to collect from your spouse. Whether your spouse would actually be liable depends on the state in which you live. If you live in a community property state, such as California, Texas, or Washington, and took out the student loan while you were married, your spouse could be responsible.
What Happens If You Have a Cosigner?
Federal student loans almost never involve a cosigner, but private loans often do (in order to improve a borrower’s access to credit or to qualify for better terms). According to the Consumer Finance Protection Bureau, more than 90% of private student loans were taken out with a cosigner in the 2016 to 2017 academic year, including 93% of loans to undergraduates and 60% of loans to graduate students.
A cosigner has agreed to pay the debt if you default, so they’re just as responsible for the loan as you are. If you die, a private lender will likely seek to collect payment from the cosigner. Some lenders may waive the remaining debt if the primary borrower (student) dies. (If you have a loan with a cosigner and want to take this burden off of them, you could consider trying to refinance the loan in only your name. This could be an option if your credit, income, and employment history have improved since you took out the loan, and you can now qualify on your own.)
It’s worth asking what happens if the situation is reversed: What if your cosigner dies? It used to be that, in some cases, your loan would go into “student loan auto-default,” meaning the lender would immediately require you to pay the full amount of the remaining loan, even if you’ve been making payments regularly until then.
However, following a 2018 amendment to the Truth in Lending Act, “auto-defaults” are no longer legal . This means that if your cosigner dies (or files for bankruptcy), your loan would not automatically go into default or wind up on an accelerated payoff timeline.
What Can You Do to Protect Loved Ones?
To ensure that your spouse or cosigner doesn’t end up with a large debt burden in the event of your death, one step you can take is to pay off your student loans faster.
You can do this by increasing the amount you pay every month, going above your minimum monthly payment, or shortening the payment term through refinancing, which could increase your monthly payment, but reduce the amount of interest you pay over the life of the loan and help you pay it off more quickly. Another option is to build a savings cushion that can be put toward your debt if you die.
How Student Loan Refinancing Can Help
Refinancing your student loans can be a good way to speed up repayment, leaving less of a potential obligation behind in case you die. When you refinance, your existing federal and private loans get combined into a single new loan. Particularly if you have a strong credit and employment history (among other factors), you may be able to qualify for a lower interest rate than on your current loans—or a shorter term to help pay down your loans faster.
With SoFi, you’ll have complimentary access to SoFi’s career coaches and wealth advisors. If you want to pay off your loans faster and protect your loved ones, look into whether refinancing can help.
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If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
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