Did you ever wonder what happens to your student loans if you die? We recently received this question from a reader:
If the borrower of a student loan dies, is the spouse liable for that loan?
Maybe, maybe not. With traditional loans, as long as the spouse is not listed as a co-signer or joint account holder, he or she is not legally liable for the debt — unless you live in a community property state.
If you live in a community property state and your spouse dies, you’re typically liable for your spouse’s debt, regardless of whether your name was on the original loan or not. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska has an optional community property provision for couples who choose to opt into a community property agreement.
With student loans, however, the rules are a little different and a spouse’s liability will depend on the type of student loan, whether or not you live in a community property state and your individual state laws.
Federal Student Loans
If the student loan is a federally backed education loan, a spouse is safe from repayment liability. According to the U.S. Department of Education, if the borrower of a federal student loan dies, the loan is automatically canceled and the debt is discharged by the government. Unfortunately, private student loans do not offer the same liability protections.
Private Student Loans
With private student loans, liability in the event of a spouse’s death will depend on the individual private lender’s policies. With a private student loan, it would be a good idea to check with the private lender to find out if they offer any death discharge protections.
Sallie Mae’s Smart Option Student Loan, New York HESC’s NYHELPs loans, and WellsFargo private student loans all offer death and disability forgiveness policies, but this isn’t the norm for most private lenders.
For most other private student loans, the lender will first attempt to collect from the borrower’s estate. If there is no estate, it will attempt to collect from a co-signer if one exists, then it would fall to the spouse, but it will depend on the community property laws in your particular state. Many community property states offer exceptions for education debts so that the spouse isn’t held liable for the debt unless they co-signed the loan.
If you live in a community property state, it’s worth checking into the laws to confirm whether or not your state has an exception. However, if you’re not a co-signer, and you do not reside in a community property state, you’re off the hook.
Tax Liabilities on Forgiven Debt
As a final word of warning, you should also be aware that there may be tax repercussions on forgiven debts — even on student loans that are canceled due to death or disability.