What Happens to Student Loans When You Die?

You may worry about leaving your loved ones saddled with your student loan debt if you die when you still owe money. If you're wondering what happens to student loans when you die, the answer will depend on a number of factors, including whether your loans are federal or private and if you had a cosigner.

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Graduation cap sitting atop a large pile of hundred dollar bills. — Image source: Getty Images.

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Cosigner

An individual who accepts full responsibility for paying back a loan if the primary borrower doesn't pay back a loan as agreed to.

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However, if your lender doesn't offer a death discharge, it can still make a claim against your estate, like any other creditor. If your debt exceeds your assets, such as savings accounts, stocks, and other investments, your estate will be insolvent. That means there won't be money left for an inheritance for your loved ones, but you don't have to worry that your family will "inherit" your debt. If your estate doesn't have enough assets to cover the balance, your lender simply won't be repaid in full.

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Private Student Loans

Non-governmental loans used to fund education, provided by banks or lenders, often with varying terms and interest rates.

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Pay attention to student loan terms

You probably weren't thinking about what happens to your student loans when you die when you initially took on the debt. But it's important to be aware of how a lender would handle things should the worst occur.

With federal student loan debt, it's pretty simple: The debt is forgiven once survivors provide proof of death. But with private student loans, examine the fine print carefully. If you don't have a copy of the documents you signed, contact your lender or servicer. Be on the lookout for an automatic default policy if you have a cosigner since you could be responsible for repaying your loan immediately should they die.

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About the Author

Robin Hartill, CFP, is a contributing writer at The Motley Fool. Robin’s work has also been published by Yahoo Finance, USA Today, and Penny Hoarder. She is a graduate of the University of Florida.

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