Federal student loans may be discharged if the borrower dies. This includes Perkins Loans, Direct Subsidized and Unsubsidized Loans, Parent PLUS Loans, Grad PLUS Loans, and Direct Consolidation loans. In addition, a Parent PLUS Loan may be discharged upon the death of the student for whom the parent borrowed the loan.
To obtain a death discharge, the family should provide an original or certified copy of the death certificate or a complete and accurate photocopy of an original or certified copy of the death certificate. The death certificate should be provided to the school for Perkins Loans and to the servicer for Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. In unusual circumstances, the death discharge determination may also be based on other reliable documentation, subject to a case-by-case review by the U.S. Department of Education for Direct Loans and the guarantee agency’s CEO for Federal Family Education Loans (FFEL) loans.
The loan is not charged against the borrower’s estate, nor is the discharge treated as income to the deceased borrower. However, borrowers of Parent PLUS Loans whose obligation is discharged due to the student’s death, as opposed to the borrower’s death, will receive an IRS Form 1099-C, Cancellation of Debt, if the amount discharged was $600 or more. IRS Form 1099-C treats cancelled debt as taxable income to the borrower, who must then pay income taxes on this income. (There are exceptions to the treatment of canceled debt as income for bankruptcy discharge and insolvency.)
Some lenders of private (non-federal) student loans offer a death discharge if the borrower dies. These include Sallie Mae, New York’s Higher Education Services Corporation, Wells Fargo, and Discover. With other lenders, the borrower should ask about the lender’s compassionate review process. Some lenders will waive the cosigner’s obligation on a case-by-case basis if the cosigner is on fixed income and does not have the resources to repay the debt or if the student was killed in action while serving in the U.S. Armed Forces or in a public safety position.