Death may not end student loan obligations

Student loans

Student loan obligations are blindsiding many grieving families. Image: Flickr / MoneyBlogNewz / CC-BY

In the United States, students in college have racked up more than $885 billion in student loan debt. While students are on the hook for the majority of that debt, some families are facing heart-wrenching decisions. Some families are being held responsible for student debt even after the student dies.

The student loan market

Student loans are big business. Federal loan programs offer up to $5,000 per year per student. That money, however, is barely enough to cover books at most schools. Private student loans are not always government-backed and often require cosigners for students with little or no credit history. In many cases, getting a student loan is easier than getting a no fax payday loan. One of the reasons it is so easy, however, is because student loans are not affected by bankruptcy — they are practically impossible to write off.

Student loans and death

As families in Nevada, Texas and across the country have discovered, death does not necessarily cancel out student loans. If there is a cosigner on a student loan, the responsibility of paying back the loan transfers to the cosigner. This leaves many parents who are grieving the death of their child with the added, unexpected responsibility of paying back thousands of dollars worth of debt for their adult children.

Death and default

Student loans that have no cosigner, much like any other unsecured loan, are technically considered to be “in default” if the loan holder dies. A person’s estate — whatever items of value left behind — is responsible for paying back the loan debt. If the estate cannot pay back the loan, then the bank has to write off the debt. Due to the fact that most students use cosigners to qualify for loans, that debt is passed along.


Wall Street Journal

Other recent posts by bryanh