Announcing The Winner of Our Financial Literacy Scholarship (Spring 2022)
We are awarding $750 to a student every semester. All you have to do is show us how financial literacy has made a difference in your life.
Student debt can feel larger than life, maybe even to the point that it spills over into death. Many individuals with looming student debt may wonder what happens to their debt once they pass away. Debt after death is a morbid topic, however, it is important to understand to protect yourself and loved ones. In this article, we will explore what happens to your student debt if you die.
Related:
All federal student debts are dischargeable when the borrower dies. Federal student loans are not passed on to any of your family members or your estate. Instead, your student debt will be completely forgiven by the government and no one will be responsible for paying it. This is one of the several benefits of federal student debt.
In order to complete the debt forgiveness process, someone will need to provide proof of death to the student loan service manager overseeing the deceased individual’s debt. Once this is done, the debt will be fully forgiven.
There is much less protection with private student loans when compared to federal student loans. Private lenders have no legal obligation to discharge or cancel student loans in the event that the borrower dies.
However, that doesn’t mean that private lenders won’t discharge or cancel the debt if the borrower dies, some may do so anyway. If you want to get more clarity, review your student loan agreement to identify details about how the student loans are handled in the event of the borrower’s death.
If the private lender does not discharge or cancel the debt, it won’t disappear. Rather, outstanding debt is passed on to the estate of the deceased borrower. An estate is settled through a probate process which includes paying off and settling outstanding debts. If there isn’t enough money in the estate to settle all debts, including student debts, the debt often remains unpaid. Although one thing is certain, unpaid student debt will not be passed on to someone who is not legally responsible for the debt, such as a family member or friend of the deceased individual.
In the eyes of a lender, the primary borrower and co-signer on an agreement both have equal responsibility to repay debt. If a co-signer on an agreement dies, it can cause problems. Some agreements state that if the co-signer passes away, the student loan is automatically put into default, regardless of whether the primary borrower has continued to make payments. At this point, the lender can demand the full payment of the loan which would cause financial hardship for the primary borrower.
These clauses have become less common, but it is definitely something to watch out for. If you’re concerned about this, take a minute to review your agreement to identify if this condition is applicable to your co-signed student debt.
Related: What Happens if your Co-signer Declares Bankruptcy?
Generally speaking, the surviving spouse will not be held legally responsible for student debt repayment of their deceased spouse. There can be exceptions, for example, if the deceased spouse was a co-signer on a loan.
As we saw above, your family and loved ones will not become legally responsible for your debt if you die, unless they have co-signed a loan with you. One thing you can do to protect your family and loved ones in this unlikely scenario is to purchase a life insurance policy. The proceeds from life insurance will cover your outstanding student debts if the lender demands payment in full from your family or loved ones.
Keep in mind that your life insurance policy doesn’t need to be the most expensive on the market. So long as the proceeds are enough to cover your student debt, you will be protecting your family and loved ones.
Depending on the type of student loan debt you have, how it will be handled in the event of your death varieties. This is why it is so important that you fully understand all your options and to read your loan contract before you make any final decisions.
Rating of 5/5 based on 9 votes.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.
We are awarding $750 to a student every semester. All you have to do is show us how financial literacy has made a difference in your life.
Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.
Borrow $500-$50,000 from Fairstone by May 31 and don’t pay until July.
Build credit while spending money with the Refresh Financial VISA card.
With KOHO’s prepaid card you can build a better credit score for just $7/month.
Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.