What Happens to Parent PLUS Loans When You Die?

The death of a borrower or the student on whose behalf a Parent PLUS Loan was taken out dramatically impacts the loan’s status. In most cases, the Parent PLUS Loan is discharged (canceled) if either the parent borrower or the student for whom the loan was obtained dies. This provides significant relief to the surviving family members, preventing the loan from becoming a burden on their estate. However, certain circumstances can complicate this seemingly straightforward process, necessitating a deeper understanding of the rules. Let’s delve into the specifics.

Death and Discharge: The General Rule

The Department of Education has established clear guidelines regarding the discharge of federal student loans, including Parent PLUS Loans, upon the death of the borrower or the student. This policy stems from the understanding that saddling grieving families with debt incurred for education is not only insensitive but also potentially detrimental to their financial stability.

Documentation is Key

To initiate the discharge process, the executor of the deceased’s estate or a family member must provide acceptable documentation to the loan servicer. Typically, this involves submitting an original or certified copy of the death certificate. The loan servicer will then review the documentation and, upon verification, initiate the discharge. It’s important to contact the loan servicer as soon as possible after the death to understand their specific requirements and procedures.

The Implications for Co-signers

While the death of the borrower generally results in discharge, the presence of a co-signer can alter the situation. However, Parent PLUS Loans do not have co-signers. The parent is the sole borrower, which means the loan is eligible for discharge upon their death or the death of the student, without shifting the responsibility to another party.

What About Estate Taxes?

The discharged amount of the Parent PLUS Loan is not considered taxable income to the deceased’s estate or the surviving family members. This is a crucial point to remember, as it eliminates potential tax liabilities associated with the loan forgiveness.

FAQs: Navigating Parent PLUS Loan Discharge After Death

Understanding the general rule is essential, but many specific questions arise when dealing with the complexities of loan discharge after a death. Here are some frequently asked questions to help clarify the process:

1. What Happens If I Inherited a Parent PLUS Loan Before the Discharge Policy?

Before the current policy, inheriting a Parent PLUS loan was a harsh reality. However, the current discharge policy applies retroactively. If you inherited a Parent PLUS Loan and are still paying it, you should contact the loan servicer immediately and provide the required documentation (death certificate) to initiate the discharge process. You may be eligible for a refund of payments made after the date of death.

2. Does the Type of Parent PLUS Loan (Direct vs. FFEL) Matter for Discharge?

Regardless of whether the Parent PLUS Loan is a Direct Loan or a Federal Family Education Loan (FFEL), the discharge policy applies. As long as it’s a Parent PLUS Loan, the death of either the parent borrower or the student should trigger the discharge process. Note that FFEL loans are often serviced by private companies, so you’ll need to identify the correct loan servicer.

3. What if I Can’t Find the Loan Documentation?

Locating loan documentation can be challenging, especially during a difficult time. If you’re unsure where the loan was serviced, start by checking the deceased’s credit report, which will list all outstanding debts. You can also contact the Department of Education’s Federal Student Aid Information Center (FSAIC) for assistance in identifying the loan servicer. They can be reached at 1-800-4-FED-AID (1-800-433-3243).

4. Is There a Time Limit for Applying for a Death Discharge?

While there’s no strict time limit, it’s highly advisable to apply for discharge as soon as possible. Delaying the process can result in unnecessary interest accrual or continued payment demands. Contacting the loan servicer promptly will streamline the process and minimize potential complications.

5. What Happens if the Parent PLUS Loan is in Default?

Even if the Parent PLUS Loan is in default, it is still eligible for discharge upon death. The default status doesn’t negate the discharge eligibility. Submit the death certificate to the loan servicer, and they will process the discharge accordingly.

6. Can I Use a Copy of the Death Certificate?

Most loan servicers require an original or certified copy of the death certificate. A photocopy is typically not sufficient. You can obtain a certified copy from the vital records office in the county or state where the death occurred.

7. What If the Student Dies, but the Parent is Still Alive?

The Parent PLUS Loan is discharged even if only the student dies. The death of the student, for whom the loan was obtained, is a valid reason for loan discharge, regardless of the parent’s survival. The parent borrower still needs to provide the death certificate to the loan servicer.

8. Will the Discharge Affect the Deceased’s Credit Score?

The discharge of the Parent PLUS Loan will not negatively impact the deceased’s credit score. In fact, it will remove the debt from their credit report, potentially improving their overall credit history at the time of death.

9. What if I Made Payments After the Death of the Borrower/Student?

If payments were made on the Parent PLUS Loan after the date of death, you are generally entitled to a refund. Contact the loan servicer and provide documentation to support your claim for a refund. The servicer will review the payment history and process the refund accordingly.

10. Does the Discharge of a Parent PLUS Loan Affect Other Loans?

The discharge of a Parent PLUS Loan does not affect other loans held by the deceased or their family members. The discharge is specific to the Parent PLUS Loan and does not impact other debts or credit obligations.

11. What If I Am a Power of Attorney For the Parent Borrower?

If you have Power of Attorney for the parent borrower, you can act on their behalf to initiate the discharge process. However, the Power of Attorney is generally only valid while the parent is alive. Once the parent passes away, the authority transfers to the executor of the estate.

12. Where Can I Get Help Navigating the Discharge Process?

Navigating the discharge process can be overwhelming. Several resources are available to assist you. You can contact the loan servicer directly, the Department of Education’s Federal Student Aid Information Center (FSAIC), or a qualified financial advisor or attorney specializing in student loan matters. These professionals can provide guidance and support throughout the process.

In Conclusion

The discharge of Parent PLUS Loans upon death is a significant benefit that offers much-needed relief to grieving families. While the process is generally straightforward, it’s crucial to understand the specific requirements and procedures involved. By following the guidelines outlined above and seeking assistance when needed, you can ensure a smooth and efficient discharge process, alleviating the financial burden of student loan debt during a difficult time. Remember, proactive communication with the loan servicer and proper documentation are key to a successful outcome.