What Happens If The First Borrower Dies? - For Free Consultation, Call (877) 621

Posted by Genoveva on April 22nd, 2021

Student Loans seems to live longer than the borrower, Who actually have it. It will not be wrong to state that these loans have their own life. So, the question is will the Student Loan lives even after the death of its borrower?. Well, to answer this, I must say that, It all depends upon the type of loan you have. If you introduced any co-applicant, Not only this but in some cases, The residential state will also be affecting the same.

What happens to my Student Loans If I Die?

Let’s start with the type of loans that one can get and what actually you have?. So basically 2 types of Student loans are there. But there are 2 types that are not offered by the private or govt. banks or NBFCs.

Federal Student Loan

Private Student Loan

Parent Plus Loan

Loan With A Co-applicant / Co-signer

In case if you have a Federal Student Loan

So with Federal Student Loans, The process is quite simple and friendly. In the case if the first borrower dies. Then the entire loan will get wiped out. That means, this loan will not pass-over to your family or successor in case you die. Thus any member from the family can present the death certificate of the first borrower to the loan servicer. So that the family can get the discharge from the loan.

However, there are several other legal way that help you cancel your Federal Student Loan. But we will have a look at this in our upcoming articles.

In case if you have a Private Student Loan

Well, Student loans from a Private sector bank or NBFCs will not be going to end as Federal Student Loans even after your demise. However, earlier as per the Credit.com report, Your family, or children can not be held responsible for your student loans after your death. But if we talk about the Loan discharge, Yes, some private lenders may discharge the family from the loan. If the first borrower dies.

But not all loan servicers are going to give you the same options. So, If you die with a pending student loan. There are chances that your family have to repay that. In simple words, Student Loans, Or refinanced loans are like traditional loans that need to get paid. Either by the first borrower or his/her family.

If you have Parent PLUS Loans

So If you have a Parent PLUS loan, Then after you died, Your family can get the discharge from this loan. Because PLUS loans are also Federal loans. That’s why after your demise, the loan will not pass over your estate or your survivors. So that means, we can put either a parent or a student as an example in this loan type. Thus this loan can get canceled if either a parent or the student dies.

However, till 2018, there supposed to be some tax consequences are there with this loan. So what happens was that after the death of the student. No doubt that the survivors are getting discharged from the loan. But the parents will be getting a form 1099-C from IRS after the debt cancellation. But what is this 1099-C form for? well, as per this form, the discharged loan will now be considered as the taxable income of the parents. Against which the parents had to fill a huge tax amount.

But that was the case till 2018, however, in 2021, Some experts say that this 1099-C form is also wiped out from the system. By taking an example of the parent’s permanent disability or incapability due to low or no income source.

Student Loans With A Cosigner / Co-applicant

In most of the Student Loan cases, We noticed that there is co-applicant as well in the whole process. However, the cosigner can speed up the process but it can be a trouble for the co-applicant in case you died. In simple words the cosigner will have to pay the remaining debt and that also more than the discussed amount.

The whole process will be accelerated for the cosigner. In the worst case scenario, The pending amount of the whole loan will become due with immediate effect. No matter is the cosigner is spaying on time or not.

However, some loan providers may ask you to pay a specific amount for sometime. Just to check the repayment capability that you have. If you are able to pay the discussed amount by your own. You can get the cosigner release easily. But not all loan servicers offers this option.

But in the case of parent cosigners, They should make sure to opt an insurance policy for their child. So that if the student dies than the loan amount can cover up the loan debts. In simple words, If the Student Loan was of ,000.00, Then the insurance policy must be minimum of the same value.