There is actually a student loan termed as PLUS Loan or a Parent Loan for Undergraduate Students. With this type of student loan, it is the parent who applies and takes all the obligations for the loan. Therefore, under this type of loan, the parent is the borrower while the student is the recipient. So under this law, if either of the borrower or the recipient dies before the full payment of the student loan that they acquired, the loan can be canceled with death as its basis.
Like in the case of a mother who took a PLUS loan for her son, the son should no longer have to pay for the loan upon his mother’s death since his mother is considered as the borrower. This will also apply if the father co-signed the application. Normally, people would think that the obligation would be transferred to him as a co-signatory, but under this law, he does not have to pay for the remaining principal and interest of the loan upon the death of his spouse who is the loan borrower.
With this as the case, it is important for both student loan borrowers and recipients to be aware of this law and also to inform their loved ones that their obligation for the student loan that they acquired will not be transferred to them upon their death so that they will no longer have to pay them off. This also goes for student loans that were consolidated with one’s spouse.
It is also important to take note of the fact that student loans will not be automatically canceled upon the death of its recipient or borrower; it has to be filed to the loan holder. For those with FFEL or direct Stafford loans, the original or a certified copy of the death certificate must be sent to the loan holder, while for federal Perkins loan, the death certificate must be presented to the school where the recipient earned his degree.
Lynnette Khalfani-Cox, The Money Coach®, is a Personal Finance Expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.
