How to Handle Student Loans

Federal student loans are fully discharged (forgiven) upon the death of the borrower. This includes Direct Loans, FFEL Program loans, and Perkins Loans. Parent PLUS loans are also discharged upon the death of either the parent borrower or the student on whose behalf the loan was taken. To apply for discharge, contact the loan servicer and request a death discharge application. You will need to submit a certified death certificate. Processing typically takes 30 to 90 days, and the servicer should stop collection efforts once the application is received.

As of 2018, student loan debt discharged due to death is no longer treated as taxable income at the federal level, so neither the estate nor the family will owe federal income tax on the forgiven amount. However, some states may still tax discharged debt — check with your state's tax authority or a tax professional. If any payments were made after the date of death, request a refund of those payments from the loan servicer.

Private student loans are a different matter. Unlike federal loans, private lenders are not required by law to discharge loans upon the borrower's death. Some private lenders do have death discharge policies — check the original loan agreement or call the lender to ask. If the deceased had a cosigner on a private loan, the cosigner remains fully responsible for the debt. Some private lenders have a "cosigner death clause" that can trigger default if the primary borrower dies, even if the cosigner is alive and making payments — though public pressure has caused many lenders to revise these policies. If you are a cosigner on a deceased person's private loans, contact the lender immediately to understand your obligations and options.