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?
Typically, the private student loan lender will first try to get the money from the borrower’s estate. If there is no estate, then the private loan lender will go after the cosigner of the loan. (In most cases, grieving parents or grandparents.)
“Oh, no! What can I do to protect myself from this?”
If you are currently thinking about cosigning a student loan for someone, please, please hold off until you read my article 7 reasons you should never cosign a student loan.
If you are currently shopping for private student loans (or if you’ve cosigned private student loans for someone already), call the lender’s customer service phone number and ask: “Does this policy offer any death discharge protections or death and disability forgiveness policies? If so, I need to see the fine print that clearly states this. Can you send me a copy of my policy with that part highlighted? Oh — you actually don’t know the answer to this question? Could you please transfer me to someone who does?”
If you find that you’ve cosigned a student loan that does not offer these important protections, you might want to get yourself free from that debt as soon as possible.
“How can I remove myself from being a cosigner on a private student loan?”
1. You can take steps to get a “cosigner release.”
With private student loans, you may be eligible for a cosigner release once the person you signed for makes a certain number of consecutive on-time payments and completes a credit check. But you’ll likely have to insistently and proactively “beat down the door” of the student loan servicer in order to make this happen.
2. You can dive full-speed ahead into paying the loan off, yourself, as fast as you can.
Taking a Financial Peace University class near you can help you with this.
Remember, if you pay your daughter’s private student loan off early, she can still fulfill her obligation to you by making payments directly to you.
“I’m married to someone who has a lot of private student loan debt. What’s my liability for those loans?”
1. Did you cosign those student loans?
If you did, then unless you get the cosigner release described above, you’ll have to pay those loans in full, even if your spouse dies. If you refuse to pay and default on those loans, you could be slammed with interest and penalties that will double that debt load.
2. Did you avoid cosigning, but you currently live in a “community property” state?
If you live in a community property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin (or, under certain circumstances, Alaska), you will typically be liable for all of your spouse’s debt after he or she dies. However — some community property states mercifully offer exceptions for education debts that will free you from the obligation to pay. To determine what’s true in your particular state and under your particular circumstances, contact your state department of education and ask.
“I have student loan debt of my own. How can I get free of it as quickly as possible?”
I’m so glad you’re asking that! Leaving student loan debt behind after you die can cause nightmares for the people you love, even if that debt is forgiven or discharged. Why? Because there can be tax repercussions on forgiven debts — even on student loan debt that has been canceled due to death or disability.
I offer free help getting free of student loan debt in this 3-article series. Please read and SHARE.
“What else do I need to do to protect myself and my family?”
Listen closely to Suze Orman’s advice on this subject. In this video, Suze advises a young couple with private student loans to take out a term life insurance policy that will cost a mere $30 per month or less. (A tiny amount considering the protection it provides.) If the student dies with this term life insurance policy in place, money will be immediately available to pay off those student loans and leave no debt burden for loved ones left behind.
[Tweet “Every parent, every student, needs to know this before signing up for even one student loan. (The best time to read this important info? Before kids reach 7th grade.) #studentloandebt #die” Thx @SuzeOrmanShow.]
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Who is Jeannie Burlowski?
Jeannie is a full-time academic strategist, podcast host, and sought-after speaker for students ages 12–26 and their parents and grandparents. Her writing, speaking, and podcasting help parents set their kids up to graduate college debt-free, ready to jump directly into careers they excel at and love. Her work has been featured in publications such as The Huffington Post, USA Today, Parents Magazine, and US News and World Report, and on CBS News.
This article was updated on October 27th, 2022.