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Parents often turn to the Federal Parent PLUS Loans and private parent loans to help pay for their child’s college.
But if the parent who has borrowed the Parent PLUS Loan dies or private parent loans, what happens with the parent loan? It’s a question that college students and parents may not want to ask. But the fact is knowing what happens with parent loans after a parent dies is a big deal.
Federal Parent PLUS Loans
Parent PLUS Loans are federal loans geared specifically for parents of college students looking to bridge the financial gap between funds the family has on hand and the funds the family needs to fully pay for college. They are borrowed by parents, who are responsible for paying off the loans and have the loans in their names.
If a mom or dad dies after taking out a Parent PLUS Loan and hasn’t repaid it, the following scenarios unfold.
The loan is discharged, but not without some significant paperwork first.
Parent PLUS Loans are automatically dissolved when the parent whose name appears on the loan passes away.
To have the loan eliminated, a family member or designated family trustee has to contact the loan’s servicer, and generate proven documentation (such as a death certificate) in order to have a Parent PLUS Loan discharged. Families can get death certificates either directly from the state (contact your local government health department or coroner’s office for help) or from the funeral home that handled the funeral service.
Student loan lenders will accept an original death certificate, a certified copy of a death certificate, or a high-resolution photo copy of a death certificate.
The loan will be discharged for the death of the borrower, or the college student.
U.S. Department of Education will dissolve a Parent PLUS Loan in the event the parent borrower passes away, or the college student who receives the funds passes away.
If the federal loan is refinanced into a private loan, the loan may not be discharged.
If a parent decides to refinance a Parent PLUS Loan to get a lower interest rate, the terms of the loan may change significantly. Refinancing a Parent PLUS loan could potentially lower your interest rate, which saves money and could help pay off the loan faster. Depending on the your new term, you could also lower your monthly payment. However, if you refinance to a private lender, you may not qualify for the death discharge (as well as other federal loan perks, including any federal loan forgiveness). Be sure to confirm with your new lender, if this is a concern for you.
Private Parent Loans
The following private student lenders offer a death discharge (for either private student loans or refinancing student loans):
Citizens Bank
LendKey (depending on the region)
and Wells Fargo, among others.
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At Savingforcollege.com, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.
