About 2.8 million Americans aged 62 and older carry student loan debt, but what happens to it when the borrower dies? Find out!
Many people feel like they’ll be paying off their student loans forever. The issue is becoming more relevant as older people are increasingly carrying student loan debt. As of the second quarter of 2024, 2.8 million Americans aged 62 and older had student loans, compared to 1.7 million in 2017, according to the U.S. Department of Education.
But as people get older and still carry debt, some start asking what happens to the debt if the borrower dies. Well, that’s what you are going to learn. Also, if you want to check out more financial tips on our website, you can click on this link!
What Is Student Loan Debt?
It is money borrowed to pay for college or other higher education expenses. These loans can come from two main sources:
- Federal Loans: provided by the U.S. Department of Education, federal loans typically offer lower interest rates and more flexible repayment options than private loans;
- Private Loans: issued by banks, credit unions, and other lenders, private loans often have variable interest rates and may be harder to qualify for.
How Do Student Loans Work?
Federal Student Loans
These loans are funded by the U.S. Department of Education. To apply, you need to fill out the Free Application for Federal Student Aid (FAFSA). Generally, federal student loans don’t require a credit check (except for PLUS loans), and their interest rates are determined by federal law, typically lower than those for private loans. Based on your financial needs, you may qualify for the following federal loans:
- Direct Subsidized Loans: designed for undergraduate students with demonstrated financial need. Eligibility is based on your school year and financial dependency status. The government pays the interest on these loans while you’re in school and during deferment periods. Interest starts accruing after graduation or if you drop below half-time enrollment;
- Direct Unsubsidized Loans: open to undergraduate, graduate, and professional students regardless of financial need. Unlike subsidized loans, interest accrues at all times;
- Direct PLUS Loans: available to graduate and professional students, as well as parents of dependent undergraduates, to cover additional costs not met by other financial aid. A credit check is required for these loans;
- Direct Consolidation Loans: allows borrowers to combine multiple federal student loans into one, with a single monthly payment and interest rate. This can simplify repayment but may result in higher total interest over time due to extended repayment periods.
Private Student Loans
Lenders set their own criteria for eligibility, often requiring a good credit score (typically 670 or higher) for the best rates and terms. Since most undergraduates have limited credit history, they usually need a co-signer to qualify. However, some lenders do offer loans without a co-signer.
Private student loans generally lack the borrower protections offered by federal loans, such as income-driven repayment plans, loan forgiveness programs for certain public service jobs, and flexible deferment options in case of financial hardship. Therefore, it’s usually advisable to exhaust federal loan options before considering private loans.
Does Student Loan Debt Get Forgiven?
In some cases, yes, student loan debt can be forgiven. Here are some of the main forgiveness programs:
- Public Service Loan Forgiveness (PSLF): if you work in public service for at least 10 years and make 120 qualifying monthly loan payments under an income-driven repayment plan, the remaining balance of your federal student loans may be forgiven;
- Teacher Loan Forgiveness: teachers who work in low-income schools for five consecutive years may be eligible for forgiveness of a portion of their federal student loans;
- Income-Driven Repayment (IDR) Forgiveness: after 20 or 25 years of qualifying payments under an income-driven repayment plan, the remaining balance of your federal student loans may be forgiven;
- Closed School Discharge: if your school closes while you’re enrolled or shortly after you withdraw, you may be eligible for discharge of your federal student loans;
- Borrower Defense to Repayment: if your school misled you or engaged in misconduct, you may be eligible for discharge of your federal student loans.
What Happens To Your Student Loan Debt When You Die
Fortunately, federal student loans are forgiven when the borrower dies. This also applies to Parent PLUS loans, they are discharged if the parent or the student for whom the loan was taken out passes away. Even if someone has “endorsed” a Parent PLUS loan, which is similar to co-signing, they are not liable if the borrower or student dies.
If a loved one with federal student debt passes away, their family should contact the loan servicer to find out what documentation is needed to discharge the debt, usually an original or certified copy of the death certificate. During this process, the account can be put on hold for 60 days. You can find the loan servicer’s contact information at Studentaid.gov. Importantly, there are no taxes on the forgiven amount, so the deceased’s estate will not be burdened by this debt.
However, the situation with private student loans is less clear. Some private lenders will forgive the debt if the borrower dies, but not all do. According to Kantrowitz from PrivateStudentLoans.guru, a website that tracks the policies of different lenders, about half of private student loans offer a death discharge, and half do not.
If the loan isn’t discharged, a co-signer may be held responsible for the debt. Even without a co-signer, the deceased’s estate could be liable for the loan. However, family members are not personally liable beyond the estate’s assets.
If the lender does not offer a death discharge, the co-signer or family can contact the lender to explain their situation, especially if they are facing financial hardship, health issues, or are on a fixed income. Financial experts often recommend that families consider life insurance to cover remaining debt, even for younger borrowers with private or co-signed loans. If a loan doesn’t get discharged upon death, refinancing with a discharge policy may be a wise move.
Some states have passed laws to protect co-signers of private student loans, so it’s worth checking what rights you may have. For example, Maine’s Student Loan Bill of Rights, sponsored by Senate Majority Leader Eloise Vitelli, was enacted in 2019 after a family shared their tragic experience of being pursued by a loan servicer after their daughter, who had student loans, passed away.