Even if the world ends any day now (like it seems it might), two things will last: termites and your student loans. Nearly 44.7 million Americans have student loan debt, and some students feel so overwhelmed they’re refusing to pay them back while they pray a new president might eliminate them. But that’s less likely than termites suddenly going extinct after 250 million years. Your loans will even outlast you.
Let me be more clear: If you die, carrying student debt to the grave, not all loans are forgiven. Your parents or spouse might still be on the hook. I’m sorry for their loss and their finances.
But that all depends on whether your loans are federal or private.
☠️ Federal Loans ☠️
Let’s get the good news out of the way first: Federal student loans, the ones issued by the government, are forgiven. (If you have one or multiple, it’ll be listed in the National Student Loan Data System.) “If your loan servicer receives acceptable documentation of your death, your federal student loans will be discharged,” reads the U.S. Department of Education Federal Student Aid website. So make sure your sister or your spouse has your death certificate sent to the government. Otherwise, they might just have to snap a picture of you in the coffin.
☠️ Parent PLUS Loans ☠️
What about a Parent PLUS loan? These are loans taken out in a parent’s name, not the student’s, and they’re federal loans that are eligible for discharge. “Federal loans, including federal Parent PLUS loans, are dischargeable upon the death of the borrower,” Adam Minksy, student loan lawyer, tells me over email. “Parent PLUS loans are also dischargeable upon the death of the student who benefited from the Parent PLUS loan.”
So there you have it. Federal loans die when you die. However, your parents are not off the hook. Discharge of a Parent PLUS loan due to the death of the student is actually taxed. When you croak, your parents will receive flowers from Aunt Kathy, a casserole dish from their neighbor Jan and a 1099-C tax form from the IRS.
☠️ Private Loans ☠️
Things get murky if you have a private student loan. These are issued by banks such as Sallie Mae, Wells Fargo and Citizens Bank. (If you don’t know which bank your loan is associated with, thecollegeinvestor.com says to check out your credit score.)
Each bank operates by its own death discharge rules, so there’s no easy answer. Connor Peoples, a representative for Sallie Mae, tells me over email that the company has a death discharge policy. “Virtually all private student lenders, including Sallie Mae, forgive a private student loan if the student dies or becomes permanently disabled. We’ve had that policy in place for more than a decade,” he says.
However, this policy isn’t enforced every single time. Some private student loans come with a cosigner. If you die, your cosigner may be responsible to pay — often, immediately so.
“The death of the borrower or the cosigner can trigger default,” Heather Jarvis, a student loan expert, tells Student Loan Hero. “That means the entire balance becomes due immediately, even if the surviving signer has always made payments on time.” So maybe ask Aunt Kathy for cash, not flowers.
One of the reasons I’m not getting married anytime soon is spousal student loan debt. If a spouse takes out private loans before marriage, you’re likely not responsible for repayment, according to Student Loan Planner. However, if the spouse took out private loans after you got hitched, you better hope you don’t live in a community property state.
Nine states — Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — consider private loans part of “community property,” meaning your loans are your spouse’s, too. (Looks like I’m never moving to Milwaukee.) There is one loophole: U.S. News reports that some community-property states like California might make you exempt if the state legislature considers student loans a separate property.
Still confused about student loans and death discharge? Review your student loan policies now. Consulate your private bank and then possibly consulate a student loan lawyer if you need to fight, default or refinance. But please, for the love of God and my very organized father, do not wait until the last minute to find your answers.