top of page

Federal Student Loans


This has been a topic before, but let’s revisit it. What happens to student loans if the borrower passes away before the loans are paid off? This can be a big concern for younger clients, especially those who need to plan for their young children in addition to doing general estate planning.


(This article covers federal student loans. The terms of private student loans vary by provider.)


According to StudentAid.gov: “Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out.” This means that the borrower’s estate will not have to pay back those student loans. Getting the loans officially discharged requires someone (such as a parent, spouse, or friend) to submit proof of the borrower’s death, usually a death certificate.


“Loan discharge” generally refers to the cancelation of a borrower’s obligation to repay some or all of the remaining amount owed on a loan due to circumstances such as school closure, a school’s false certification of a borrower’s eligibility to receive a loan, a school’s failure to pay a required loan refund, or the borrower’s death, total and permanent disability, or bankruptcy. (See here and click on "discharge"; see also here.)


Ordinarily, debt forgiveness is considered taxable income by the IRS. However, the Tax Cuts and Jobs Act of 2017 provides that loan balances discharged due to death are not considered income for federal tax purposes (PDF of the law found here - see page 28). This law applies to borrowers passing away in the years 2018-2025.


Comments


Recent Posts
Follow
  • Facebook App Icon
  • LinkedIn App Icon
Search By Tags

DISCLAIMER: NOTHING ON THIS WEBSITE IS INTENDED TO BE TAKEN AS LEGAL ADVICE.  CASE RESULTS DEPEND UPON A VARIETY OF FACTORS UNIQUE TO EACH CASE.  ANY CASE RESULTS DISCUSSED ON THIS WEBSITE DO NOT GUARANTEE OR PREDICT A SIMILAR RESULT IN ANY FUTURE CASE UNDERTAKEN BY THE LAWYER.

 

Information found on this website is not a substitute for the advice of an attorney.

© 2013 - 2019 by Hilary J. Leitch/Leitch Law PLLC.

Disclaimer: The information contained in this website is provided "as-is,"' with no warranties or guarantees. This information should not be considered as actual legal, tax or investment advice and you should always contact a certified accountant, a tax professional, or an attorney before making any financial decisions. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. The user is solely liable for any and all reliance, use, or action on this information.

bottom of page