Student loan debt is a familiar problem for many Americans; Pew Research reported that they collectively owed approximately $1.6 trillion in education debt as of June 2024 (1).
Most people who owe took out loans themselves or cosigned as guarantors for others who borrowed. But what happens if you end up surprised with a student loan-sized debt that you weren’t expecting?
Let’s imagine, for example, that Dave went to an expensive four-year college and covered his first year alone. To do this, he took out around $30,000 in student loans and his parents paid the rest. Now, four years after graduating, Dave’s father died and his mother, who was not in charge of the family finances, received a notice in the mail saying that his father owed $90,000 for Dave’s education.
Will Dave be responsible for paying this debt and suddenly be saddled with a burden worth nearly $100,000, or did the debt die with his father? Here’s what you need to know.
The first step is to understand that there are student loans for parents and student loans for students. This applies to both federal and private student loans.
When Dave’s father took out loans, he could have obtained them in his son’s name, which certainly required Dave’s knowledge and agreement (this is not the case here). You could also have borrowed money from the Department of Education in the form of Parent PLUS Loans (2) or from a private student lender in the form of Parent Loans.
Parents who take out these last two types of loans are solely responsible for them. Therefore, Dave will not be responsible for the debt directly since the loans were not obtained in his name and Dave was not a co-signer on them either.
However, this does not necessarily mean that the debt will simply disappear. Depending on the type of loans Dave’s father took out, the debt could disappear forever or the lender could try to collect from his father’s estate.
Read more: No time to reduce your overwhelming auto insurance rate? Here’s how to do it in minutes—you could end up paying $29 a month without a single phone call.
When someone dies with debt, creditors generally cannot collect from surviving family members unless those family members:
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They co-signed the loans or were joint borrowers
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Live in a community property state, be married to the borrower, and the law says surviving spouses are responsible for certain types of debt acquired during the marriage (3)
However, creditors may attempt to collect from the estate or assets left by the deceased person.
This means, for example, that if Dave’s father had $150,000 in a bank account when he died, creditors could go after the estate, make a claim, and potentially collect the $90,000 they were owed from money left in his father’s bank account (which Dave could have otherwise inherited).
If there is no money in the estate, creditors will be out of luck.
However, if there are assets, they are generally available unless the deceased person did some estate planning during their lifetime to try to protect the assets from creditors by passing them out of the probate process.
And while creditors can typically try to collect from an estate, that may not be the case here, depending on whether the parent took out private student loans or loans from the Department of Education.
The good news is that the Department of Education cancels Parent PLUS Loans in the event of the death of the parent (and even in the event of the death of the student) (4). So if Dad took out federal loans, the government won’t go after the estate to try to get the money back.
But that’s not necessarily the case with private student loans. As Earnest explains, sometimes private lenders offer a death discharge, but in other cases, the lender will try to recover the money from the deceased’s estate (5).
So while Dave is not responsible for the debt in any way, the fate of his inheritance (or his mother’s inheritance, and his current financial well-being) will depend on whether the lender decides to try to collect from the estate and what assets remain. In this case, the policy of Dave’s father’s individual lender would determine what happens next.
In any case, everything will depend on whether the court orders payment of the loans. If that happens, Dave may want to try to help, despite having no legal obligation to pay the unpaid balance.
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Bank investigation (1); Federal Student Aid (2; 4); consumer financing (3); serious (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
