Federal student loans at death

Question: So, I've got a fair amount of student loans. I've also got a good job as a college professor, and I will be able to pay them off eventually. But I'm concerned about my wife. If something should happen, do student loans transfer to a spouse or do they stick with me? We're talking about Stafford Loans from the federal government here, and I consolidated them when interest rates were pretty low. Rudolf, Providence, RI

Answer: When you say "something should happen," I assume you are wondering what happens with the large debt should you unexpectedly die. You can rest easy (or your wife can). The debt obligation is erased at your death. Federal student loans are discharged when the borrower dies. That's all you need to know.

But many of our listeners have private student loans and there the picture is more complicated. A number of major private student loan lenders, such as Sallie Mae and Wells Fargo, forgive the loan (even if it is co-signed) if the student dies.

But not all lending institutions have adopted a forgiveness policy. Other lenders will evaluate a request to forgive the loan because the beneficiary died. They may say yes or they may say no, probably depending on an evaluation of family financial resources to meet the co-signed obligation.

My own feeling is that the loan policy should be uniform: both federal and private student loans be discharged at the borrower's death.

About the author

Chris Farrell is the economics editor of Marketplace Money.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...