Can’t take it with you—or can you?: A Conversation About Student Debt After Death

When a student prepares to enter college, they, and their loved ones, typically are thinking about the future. Higher education can open up a new world of opportunity for students of all ages and backgrounds. With this hope for a new career, and hopefully higher paycheck, in front of them, it may be easy to set aside the cost of attending college. Unfortunately, the reality of that cost can become very real for grieving families across the country in the event of their student’s untimely death. It is important for students and family members to be aware of the type of student debt they are incurring, their responsibility to that debt, and what happens to that debt should the student pass away.

Let’s talk Federal Loans…

Federal Student Loans are loans funded by the federal government to help students afford tuition, board and other costs associated with attending an institution of higher education. Federal loans generally have lower and fixed interest rates as opposed to privately funded loans, making them often a first choice for students. According to College Insight, 55% of graduates from public schools in 2017 had federal loans and 57% of private college students had them as well.

Federal student loans also provide a less discussed benefit: the ability to be discharged in the event a of a student’s death. According to the Federal Student Aid Office, an office of the U.S. Department of Education, so long as the loan servicer is provided proper documentation confirming the student’s passing, the loan(s) will be discharged and the debt will not fall on the family.

And Private Loans…

Unlike federal student loans, private student loans are borrowed from a private lender, such as a bank or school. There are many differences to account for between federal and private student, in particular what happens should the student die either while in school or after graduating.

Whether or not private student loans are discharged in the event of borrower’s death depends completely on the terms of the loan contract. There are lenders who will discharge the loan debt and others who allow the debt to fall to a cosigner on the loan or even the spouse of the borrower. Long after graduating the burden of debt could be the responsibility of the student’s loved ones.

How we can help

In summary, if a borrower passes away with unpaid student debt, federal student loans are discharged while private loans may or may not be depending on the terms of the loan. If borrowers carry private student loans, it is important for them (and their cosigners) to be prepared. And that is why your American Bar Association Insurance Program is here to help. In addition to offering student loan refinancing to help members pay off their student debt faster, AAP Insurance offers Life Insurance options to help students protect their loved ones should something happen to them.

While many young lawyers may not think they need coverage yet, life Insurance can help cover outstanding debt, including private student loans, in addition to any final expenses. For more information, visit your ABA Insurance Program online.