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Student loans: Who pays them if you die?

Approximately 44.2 million Americans are paying off student loan debt and it is hanging around longer than ever. Whether it will survive you will depend on the type of student loan.

Did you cosign on student loans for a child or grandchild, return to earn another degree later in your career or worry that a six figure graduate loan will outlive you? In this post, we will cover how student loan debt is treated in estate administration.

Death is the only escape

Student loan debt is one of those categories that is generally not dischargeable in bankruptcy. For those struggling to repay the obligation, it may feel like death is the only escape.

And many types of student loans are discharged on death. This is the case with federal student loans. However to receive a discharge survivors must submit a certified death certificate to the loan servicer.

Parent PLUS loans are another type of federal loan that is eligible for a death discharge. If the student dies the obligation would not pass to an estate, but it could result in the parent's receiving a 1099-C from the IRS for canceled debt. The tax on canceled debt could be a cruel surprise.

Private loans and cosigners

For those who have advanced degrees, it is often necessary to finance tuition and fees with private loans. These loans are more comparable to traditional personal loans.

The fine print of a private student loan or refinanced loans might not include a discharge at death. Private lenders could ask your estate to repay the debt, but loved ones would not likely be held liable.

A cosigner on a loan is a different story. This person would be liable for the full amount of the loans. And the balance might become due immediately. In some cases, it might be possible to obtain a co-signer release from a lender. Obtaining additional life insurance that covers the outstanding balance is another option. 

These obligations should be a part of a discussion during the estate planning process. Because each situation differs, it’s important to seek individualized legal counsel.

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