When the loan servicer receives proof that the parent who took out the Parent PLUS Loans has passed away, the loans are automatically discharged.
The U. S. When the parent who signed the master promissory note passes away, the Department of Education cancels the federal Parent PLUS Loans. A family member or representative must provide evidence of the parent borrower’s passing to the student loan servicer in order to receive a discharge due to death. The proof of death can be:
The funeral home that handled the burial service or the state may provide the death certificate to surviving family members or the trustee.
The IRS previously treated the amount forgiven as taxable income when a parent borrower passed away. But President Trump’s Tax Cuts and Jobs Act changed everything. At the federal level, all student loan forgiveness, including discharge due to the borrower’s death, is now exempt from income tax consequences. This law will expire in 2025. But according to the Biden administration, it is attempting to make the change permanent.
When the student for whom the parent took out the Parent PLUS Loan passes away, the loan is forgiven. The portion of the loan that paid the Parent PLUS Loans would be forgiven when the child passes away if the parent consolidated the loans into a Direct Consolidation Loan.
In the event that a parent experiences a total and permanent disability, the Education Department will discharge the remaining loan balance. If the child for whom they borrowed the loans develops a disability, it won’t work the same way. Read more about what disabilities qualify for student loan forgiveness.
Do Parent PLUS loans get inherited?
Parent Borrower’s surviving spouse, the other parent, or the children for whom the loans were taken out are not permitted to inherit or take over Parent PLUS Loan obligations. All federal student loans are forgiven when the borrower dies. No one else will be held responsible for repayment.
However, when the primary borrower passes away, the cosigner will be responsible for any private student loans. Similarly, if you reside in one of the states that recognize community property, your spouse might be forced to shoulder the loan payments.
In order to prevent your signer and family from having to repay the debt, you might want to buy life insurance if you took out student loans from a private lender like SoFI or Sallie Mae. *.
Other options include:
You might even be able to refinance and get a lower interest rate and better loan terms depending on your credit score.
Use an online marketplace like Credible to compare rates and loan terms with multiple lenders simultaneously.
*Purchasing life insurance to protect a cosigner is unnecessary for private student loan debt borrowed after Nov. 20, 2018. Federal law mandates that lenders must release the cosigner if the primary borrower dies for loans taken out after that date.
When a parent or child from whom they borrowed the loans passes away, their Parent PLUS Loans are also forgiven. Your surviving family members can’t inherit the debt.
There are other options to pay off your student loan debt before that time comes. For instance, if you work in public service for ten years or make payments for at least twenty years, the Education Department will forgive your loans. Additionally, they will forgive up to $20,000 of your federal loans if you made less than $125,000 per year during the pandemic. Read more about how to apply for loan forgiveness.
If you want to discuss your options for forgiveness and repayment, let’s talk. We’ll come up with a plan during our call to help you fit your Parent PLUS Loans into your spending plan as you get ready for the next stage of your life.
UP NEXT: Parent Loan Forgiveness for Senior Citizens
FAQ
Will parent PLUS loans ever be forgiven?
An income-based repayment plan or the Public Service Loan Forgiveness (PSLF) program may make it possible to forgive a federal parent PLUS loan. Parents who take out loans from private lenders have additional options. A type of federal student aid is the parent PLUS loan, also known as the Direct PLUS loan.
What loans are not forgiven after death?
Parent PLUS Loans are a type of student loan that are forgiven in the event that either the parent or the borrower passes away. Contrarily, private student loans are not discharged and must be paid for by the decedent’s estate.
How do I get rid of a parent PLUS loan?
If you pass away, become totally and permanently disabled (instead of the student for whom you borrowed), or, in very rare circumstances, file for bankruptcy, your Parent PLUS Loan may be discharged. If the child for whom you borrowed passes away, your Parent PLUS Loan may also be forgiven.
Do parent PLUS loans pass on to children?
Through a private lender, a parent PLUS loan can be refinanced in the student’s name. The student can refinance by taking on new debt to settle their parent’s current PLUS loan. The student would be responsible for making payments to the private lender on the newly refinanced debt.