Skip links

What Happens to Private Student Loan Debt When You Die

According to reports, over 73% of student loan borrowers were unaware that their debt would be handled if they died, so knowing what happens to student loans after you die is critical so that you can plan for the worst-case scenario.

If you’re unsure about your lender’s regulations, here are the fundamentals you need to know to protect your family.

In this article, we’ll discuss what happens to private student loan debt when you die and how to protect your family if you owe taxes on discharged taxes.

What Happens to Private Student Loans When you Die?

Check your loan agreement or lender’s policy documents to find out what happens to student debts if you die. There is no one-size-fits-all solution when it comes to student loans and borrowers’ deaths.

Private student loans are becoming increasingly popular as an alternative to federal loans, but one of the drawbacks of private loans is that loan terms may differ significantly from borrower to borrower.

You may also like: Which Document Represents The Borrower’s Promise To Repay The Loan

Does Dying Affect Parents’ Private Student Loans?

Some lenders will want the parent to repay the loan even if the student passes away, while others will cancel it.

Depending on the lender, private parent student loans are handled in a variety of ways.

To discover what will happen to your loans, ask your lender about its death and disability insurance.

Does Dying Affect Co-sign Private Student Loans?

When the borrower passes away, the lender is usually obligated to release the co-signer from his or her obligation to pay back the loan.

The co-signer, on the other hand, is responsible for the loan and must make payments if required.

If a co-signer died, many private lenders used to place the loan into default automatically.

This is no longer permitted by many banks, but it’s worth double-checking your loan provider’s rules to be sure.

If a student borrower dies, lenders must discharge co-signers according to a 2018 federal statute.

But loans taken out before 2018 are not subject to this legislation and may have different conditions.

You maybe interested in: Can Student Loan Debt Be Discharged By Declaring Bankruptcy?

Will my Family be Required to Pay Taxes on Discharged Loans?

You may be required to pay income taxes on the refunded amount under certain loan forgiveness or discharge programs.

If you have a particularly excessive amount of debt at discharge, your tax obligation might be significant.

How to Protect your Family from Paying Taxes

No one wants to think about death, preparing for the worst is a good idea since it will help your loved ones avoid dealing with an unmanageable debt load.

If you die, use these ideas to assist your family manages your student loan debt:

1. Contact Your Loan Servicer

Look up your free credit report at AnnualCreditReport to see what loans you have under your name and who the lender is.

Make a note of your loan servicer’s account number and phone numbers, as well as any other necessary papers such as your passport or birth certificate.

You may also like:

2. Consider Refinancing If you Found Better Conditions

If you have private student loans that don’t qualify for a discharge due to death rules, consider refinancing them with a lender that offers more favorable terms.

3. Make an Application for Life Insurance

If you’re concerned about who will pay off your debts if you pass away, it’s a good idea to invest in life insurance.

When you purchase a life insurance policy, the policyholder named in the contract will get a death benefit.

They may be able to pay off any bills that aren’t eligible for forgiveness using the money.

Life insurance, especially while you are young, might be reasonably priced and provide your loved ones with security.

You may also like: Do Student Loans Affect Credit Score While Still In School

Frequently Asked Questions