A question from Rachel in Plano: “My husband and I both have significant student loans. What happens to those loans if we die before they are paid off?”
A great question.
Take comfort in knowing you are not alone. According to Student Loan Hero, Americans owe over $1.48 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from the previous year.
So what happens to your student loans when you die? Do they magically disappear or are the like the roaches of the nuclear apocalypse, surviving your death to plague your loved ones for the rest of their lives?
The answer of course is, it depends.
- Federal Student Loans. Great news if all you have are federal student loans. They are discharged when you die. To receive the discharge, all your survivors need to do is to present a death certificate to the loan provider.
- Parent PLUS Loans. Like the name implies, these loans are taken out by the parent and therefore the parent (and not the student) is obligated to repay the loan. They are federal loans and can be discharged if either the parent or the student dies. A big word of caution. If the student dies and the debt is discharged, the remaining debt is treated as taxable income to the parent (meaning a big tax bill for the parent).
- Private Student Loans. This is where roaches potentially come in. Some private lenders offer a student death discharge, and some do not. Private lenders might go after your estate when you die.
- Cosigned Loans. Again, watch out for the roaches. If someone co-signed for your student loan, they are still on the hook to repay the loan after you die. Even worse, in some cases, your death could be considered a “default” triggering the entire balance of the loan to be immediately due. So how can you protect your saint of cousin who cosigned for your student loans? Ask the lender if they offer a “cosigner release” (a release of the cosigner after you show you are capable of making the payments on your own).
- Your Spouse. Do you live in a community property state (like Texas)? Your spouse could be liable for the student loans you take out while you are married.
I hope this answers your question Rachel (and your student loans are all federal loans and you never cosigned for a loan).
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