What Happens to Parent PLUS Loans When the Parent Dies?

The passing of a parent is undoubtedly a difficult time. Sorting out their finances, including Parent PLUS Loans, can add an extra layer of complexity. The good news is that these loans are eligible for discharge upon the death of either the parent borrower or the student for whom the loan was taken out. This means the loan balance is forgiven, and no further payments are required. However, navigating the process requires understanding the specific procedures and documentation needed to ensure a smooth discharge.

Understanding Parent PLUS Loan Discharge

The Basic Principle: Death Discharge

When a parent who has taken out a Parent PLUS Loan dies, the loan doesn’t automatically disappear. It requires a formal discharge application process. The same applies if the student for whom the loan was obtained passes away. The aim of the death discharge provision is to alleviate the burden of student loan debt from grieving families during a period of intense emotional and practical challenges.

Required Documentation

To initiate the discharge process, the loan servicer will require certain documentation to verify the death. Typically, this includes an original or certified copy of the death certificate. A photocopy is usually not sufficient. It is crucial to contact the loan servicer directly to confirm the specific requirements and preferred methods of submission. Prompt action is key to avoiding any miscommunication or delays.

Loan Servicer’s Role

The loan servicer acts as the intermediary between the borrower (or their estate) and the U.S. Department of Education. They will guide you through the application process, provide the necessary forms, and review the submitted documentation. It is important to keep a record of all communication with the servicer, including dates, names, and the content of conversations, for future reference.

Navigating the Discharge Process

Contacting the Loan Servicer

The first step is to contact the loan servicer immediately upon the parent’s death. This informs them of the situation and allows them to provide guidance on the specific procedures for death discharge. Be prepared to provide basic information, such as the borrower’s name, date of birth, Social Security number, and the student’s name (if applicable).

Completing the Application

The loan servicer will provide a discharge application form. This form needs to be completed accurately and honestly. It will likely ask for details about the deceased parent, the student, and the loan itself. Ensure that all required fields are filled in and that the information provided matches the official records.

Submitting the Death Certificate

As mentioned earlier, the original or certified copy of the death certificate is a crucial piece of documentation. Ensure that it is submitted along with the completed application form. Some servicers may allow electronic submission, while others may require a physical copy to be mailed.

Temporary Suspension of Payments

While the discharge application is being processed, the loan servicer will typically suspend loan payments. This provides temporary relief to the family and prevents any further financial burden during the evaluation period. It is advisable to confirm this suspension in writing with the loan servicer to avoid any confusion.

Potential Tax Implications

It’s worth noting that the discharge of a Parent PLUS Loan may have tax implications. The forgiven loan amount could be considered taxable income by the IRS. It’s crucial to consult with a tax professional or financial advisor to understand the specific implications in your situation and to plan accordingly.

What if the Student Dies?

The death of the student for whom the Parent PLUS Loan was taken out also triggers the discharge provision. The process is similar to that of the parent’s death, requiring the submission of a death certificate and a discharge application. This provision aims to provide relief to grieving parents who have lost a child.

Documentation Requirements for Student’s Death

The documentation requirements are essentially the same as when the parent dies. An original or certified copy of the student’s death certificate needs to be submitted to the loan servicer, along with the completed discharge application.

Parent’s Responsibility

Even if the student has passed away, the parent borrower is still responsible for initiating the discharge process. The loan servicer will not automatically discharge the loan upon learning of the student’s death; a formal application is always required.

Frequently Asked Questions (FAQs)

1. What if I can’t find the loan servicer information?

If you are unsure who the loan servicer is, you can access the National Student Loan Data System (NSLDS). This database, maintained by the U.S. Department of Education, provides information on all federal student loans, including the loan servicer’s contact details. You will need the deceased parent’s Social Security number and date of birth to access the information.

2. How long does the discharge process usually take?

The processing time can vary depending on the loan servicer and the completeness of the submitted documentation. It can typically take anywhere from 30 to 90 days. It’s advisable to follow up with the loan servicer periodically to check on the status of the application.

3. What happens if the loan is in default?

Even if the Parent PLUS Loan is in default, it is still eligible for death discharge. However, the process might be slightly more complex. Contact the loan servicer immediately to discuss the specific procedures for discharging a defaulted loan.

4. Are there any alternatives to death discharge?

While death discharge is the most common resolution in this situation, there are no real alternatives. Other loan forgiveness programs like Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) plans, are generally not applicable to Parent PLUS Loans after the borrower’s death.

5. Can someone else apply for the discharge on behalf of the estate?

Yes, the executor or administrator of the deceased parent’s estate can apply for the discharge on behalf of the estate. They will need to provide documentation demonstrating their legal authority to act on behalf of the estate, such as letters of administration or testamentary.

6. What if I’ve already made payments after the parent’s death?

If you have made payments on the Parent PLUS Loan after the parent’s death, you may be eligible for a refund of those payments. Contact the loan servicer to inquire about the refund process.

7. Is the death discharge taxable?

The taxability of death discharge can vary depending on state and federal laws. However, the Tax Cuts and Jobs Act of 2017 temporarily exempted student loan discharges due to death or disability from federal income tax through 2025. Consult a tax professional for clarification and guidance on your specific situation.

8. What if there are multiple Parent PLUS Loans?

If the parent took out multiple Parent PLUS Loans, a separate discharge application will need to be submitted for each loan. Ensure that you gather all the necessary documentation and contact the loan servicer for each loan to initiate the discharge process.

9. Will the discharge affect the student’s credit score?

The discharge of a Parent PLUS Loan due to the parent’s death should not negatively impact the student’s credit score. The student was not the borrower, so the loan history will not be reflected on their credit report.

10. What if the student is also deceased?

If both the parent and the student are deceased, the Parent PLUS Loan is still eligible for discharge. The estate of either the parent or the student can apply for the discharge.

11. How do I avoid scams during this process?

Be cautious of any third-party companies that offer to assist with the discharge process for a fee. The loan servicer and the U.S. Department of Education provide these services free of charge. Never share your personal information or financial details with an unverified source.

12. Where can I find more information about Parent PLUS Loan discharge?

You can find more information about Parent PLUS Loan discharge on the U.S. Department of Education’s website, StudentAid.gov. This website provides comprehensive information about federal student loans, including discharge options and eligibility requirements. You can also contact the loan servicer directly for personalized guidance.

Dealing with the aftermath of a loved one’s passing is never easy. Understanding the process for discharging Parent PLUS Loans can help alleviate some of the financial burdens during this challenging time. By being proactive, gathering the necessary documentation, and communicating effectively with the loan servicer, you can ensure a smooth and efficient discharge process.