As in marriage, student loan debt is a matter of “until death do you part.”
If you’ve got student loan debt, there are lots of options to keep yourself out of default. For some, the debt can be repaid in full before they get to the grave.
Unfortunately, as student loan debt climbs to stratospheric levels, many people ask me about the impact their debt will have on their loved ones after they die.
Morbid, but a valid concern – especially for parents and grandparents who cosign for student loans for their relatives.
Here’s the run-down.
Federal Loans Die With You
The federal loan dies with the borrower, and it’s very simple.
The surviving people (family member or estate representative) fills out a Death Discharge to officially notify the Department of Education that the borrower has passed away. You’ll usually have to send in a certified copy of the death certificate to the school (for a Federal Perkins Loan) or to the loan servicer (for a Direct Loan or FFEL Program loan).
The school or servicer verifies the information and the loan goes away. It should not affect the estate.
Private Student Loans
Private loans are completely different because they are like any other consumer debt and attaches to the estate.
I’m not an estate lawyer, so you’ll need to talk with one to determine the impact of the debt on your assets.
What Happens To A PLUS Loan When The Borrower Dies
When the borrower or the student passes away owing a PLUS Loan, it is still discharged.
If it’s a Parent PLUS Loan and the parent survives but the student or child passes away, that PLUS Loan can be discharged through that Death Discharge application.
What Happens To A Parent PLUS Loan When The Parent Dies
In a Parent PLUS Loan situation, it is the parent – not the student – who is the borrower. When the borrower passes that loan dies as well, again through the Death Discharge application.
The Procedure For Death Discharge
In contrast with some of the other federal student loan repayment, discharge and forgiveness issues, it’s really hard for the lenders and servicers to screw up the process for a death discharge.
If the person died, the person died.
Your death discharge application gets sent to the servicer and/or lender if it’s not the Department of Education. Sending an authenticated Death Certificate with it is really all there is to it because they can’t collect from the person if they’re dead anyway.
If the school or servicer does contact the estate, the estate is going to verify the death and the discharge for the court. There should be no issues with this.
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