No parent wants to consider this — but what happens if one of your children runs up $80,000 in student loan debt, and then perishes in a car accident or dies of cancer? Will your grief be compounded by having to make years (decades!) of student loan payments, until the student loan obligation is paid in full? Every parent needs to be clear on the answer to this question: “What happens to student loan debt after you die?”
The answer is scary, but — there’s great hope for those who can plan ahead just a bit.
What happens to student loan debt after you die?
First, the good news, then the bad news.
1. If the loans are Federal Direct Student Loans (the ones you get only by filling out the FAFSA form), the debt goes away when the borrower dies.
According to U.S. Department of Education policy, if a borrower of a federal student loan dies, the loan is automatically canceled and the debt is discharged by the government. (This is one of many reasons why I urge parents, please — fill out the FAFSA form, even if you’re rich. It’s the only way to get the best, safest student loans in the event that you end up needing them.)
Unfortunately, private student loans do not offer the same protection against liability.
2. If the loans are private student loans, the news is scary.
Very few private student loan lenders offer what are called “death discharge protections” or “death and disability forgiveness policies.” If the borrower dies, someone left behind has to pay up.
Who will that be?
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