What happens to your student debt after you die? Will it go away?
Debt is a difficult thing to manage, especially when it comes to student loans. Will it go away or will your loved ones be stuck with it? Read on to find out.
The student loan crisis in the United States has become a major problem for millions of people. With over $1.7 trillion in debt, many Americans feel like they will never be able to pay off their loans. This has led to a lot of financial stress and even despair for some.
If you die, your student loan debt will not go away. It is important to consider who might be responsible for your student loans should you pass away before they are paid off. To understand if your debt will die with you, you must examine the type of student debt you have acquired.
Federal Student Loans
No one likes to think about their death, but it’s important to know what will happen to your student loans if you die. Federal student loans are dischargeable upon the borrower’s death, which means that your family won’t be responsible for paying off the debt. To have the debt forgiven, someone will need to submit proof of death to the student loan servicer. While it’s a difficult topic to think about, it’s important to be prepared in case of an unexpected death.
As a federal loan, a Parent PLUS Loan is discharged upon the borrower’s death. If you are the holder of a Parent PLUS Loan and your parent dies, the loan will be discharged with them. The same is true if you die.
Private Student Loans
If you die, your federal student loans will be forgiven and your loved ones will not be responsible for paying them back. Private student loans, however, are not afforded the same protection. If you have private student loans, your lender is not legally required to cancel or discharge the debt. Some private lenders, such as Sallie Mae, may agree to discharge the balance after death, but not all of them do.
If you find yourself in this situation, the first thing you should do is check your lending agreement. There should be a clause that specifically states what will happen to your private student loans in the case of your death.
There are a few things to keep in mind when taking out a loan. One is that if the lender will not discharge the loan, the balance will be passed on. What this means is that the debt will become the responsibility of the estate, and will have to be settled through probate. If there is not enough money in the estate to cover the cost of the debt, it usually won’t be paid at all – instead, it will be passed on to a family member.
Co-Signed Student Loans
If you die, your co-signed student loans may become the responsibility of your cosigner. This is most common with private student loans, as the borrower and cosigner are viewed as equally responsible for the loan by the lender.
In the event of a co-signed student’s death, there can be some issues for the borrower if the co-signer also passes away. According to some private loan agreements, there is a clause that states the lender has the right to place the borrower into default if the co-signer dies. This means that the lender could demand that the student loans be paid in full.
Your Spouses Student Loans
In most cases, the surviving spouse will not be legally responsible for repaying the student loans of their deceased partner. The only time this would be required is if the loan was co-signed by the surviving spouse.
If your spouse dies, you may be responsible for their student loan debt if you live in a community property state. In these states, both partners are equally responsible for debts incurred during the marriage. This means that the surviving spouse must pay off the debt with property or monetary value shared by both partners.
Community property states include:
- New Mexico
Reporting a Death to a Student Loan Lender
When a loved one passes away, there are many things to take care of. One of these is contacting any lenders or creditors to let them know. With federal student loans, you will need to provide proof of death. This can be done with a death certificate or other documentation showing the date and cause of death, this includes:
- Death certificate
- Verification of death from an official of the county clerk’s office
- Letter from a funeral director
- Confirmation of death through a credit bureau
If you are in a situation where you need to borrow money from a lender, it is important to reach out and learn about their specific process and requirements. You should also work closely with the executor of the estate, in order to make sure that everything is carried out properly. By doing this, you can ensure that the entire process goes smoothly and is handled by the right person.Clearone Advantage, Credit Associates, Credit 9, Americor Funding, Tripoint Lending, Lendvia, Simple Path Financial, New Start Capital, Point Break Financial, Sagemore Financial, Money Ladder, Advantage Preferred Financial, LoanQuo, Apply.Credit9, Mobilend