Living with debt has become a societal norm, but so has dying with debt. A recent study concludes that 73% of Americans will die with some sort of debt tied to their name. The average person leaves behind $61,554 in debt which includes mortgage debt, auto loans, personal loans, and student loans. Although student loans may not be the primary source of debt for some, that can vary depending on the institution you attended and the status of your account.
Those who made timely payments throughout the life of the loan are likely to have fewer penalties on their account than individuals whose account defaulted.
If you are like the majority of Americans, you’ll likely pass with some form of debt in your name, but what happens to student loan debt specifically? Well, it depends on the type of loan you took out and the terms of that loan. Here is what you can expect to happen to student loans after death.
Federal Student Loans
We have good news for you if all of or a majority of your student loans are federal student loans. Federal student loans are discharged after the loan holder dies. You in no way have to worry about the debt being passed on to your spouse or a family member. This can come as a relief to many as 42.3 million student loan borrowers currently live with federal student loan debt. To have the debt discharged, family members must present the loan servicer with a certified debt certificate.
Parent PLUS Loans
Since PLUS loans are technically federal loans, they can be discharged upon death as well. These loans are the responsibility of the parent and not the student, but can be discharged if either individual passes away; they will not be passed on to your estate, or your heirs.
One thing worth mentioning is that tax consequences arise with the discharge of a Parent PLUS loan as a result of the student dying. The IRS will issue the parent a 1099-C form after the debt is canceled; the remaining balance of the debt owed upon cancellation serves as taxable income. The result can be a massive tax bill.
Private Student Loans
Private student loans can be a bit messy. They are more like personal loans, so the terms are set by the lender; some offer discharge upon death while others don’t. A lender may come after your estate after you die to pay off the remaining balance, but one fact should bring you some comfort. If the loan is in your name solely, your relatives or children aren’t considered liable.
One thing that remains true for all student loans is that if you are to default on an account, the debt collection calls will soon follow. Many debt collectors are relentless in the manner in which they pursue debt collection and will do anything it takes to recover payment. If you feel as if your consumer rights are being infringed upon by a debt collector, contact the Florida FDCPA and TCPA attorneys at The Law Offices of Jibrael S. Hindi.
You can rightfully recover up to $1,000 per FDCPA violation and up to $1,500 per TCPA violation. Discover your legal options by dialing 1-844-JIBRAEL for a free case evaluation. You pay nothing until Jibrael wins for you!