What Happens to Parent PLUS Loans if You Die?

Featured Stories

Filter By Categories

If you borrow money in the form of a Parent PLUS Loan to pay for your child’s college education, then you may be wondering what happens to your loan if you die before repayment is complete.  Here we will cover what happens to federal student loans in the event of disability or death.


Loan Discharge Due to Death

In the event of death, federal student loans are discharged, which means that the debtor and his or her dependents are absolved of all legal liability for repaying the debt.  In the case of Parent PLUS Loans, the U.S. Department of Education permits loan dischargement if either the parent borrower or child recipient dies before repayment is complete.  


Loan dischargement is not automatic in the event of death.  The loan servicer must be provided with acceptable documentation to prove the death, which essentially means providing a death certificate.  The death certificate can be the original, a certified copy, or a high-quality photocopy of either the original or certified copy.  After the loan is formally discharged, the loan servicer adjusts the outstanding balance to zero, causing all further collection activities to cease.


Loan Discharge Due to Disability

The Department of Education also permits student loan discharge in the event of severe disability, which is known as Total and Permanent Disability (TPD).  Eligible borrowers can have student loans discharged by completing a TPD discharge application and providing acceptable documentation from either a physician, the Social Security Administration, or the Department of Veterans Affairs.  Loan dischargement due to TPD is handled by the loan servicer Nelnet on behalf of the Department of Education.  


Just like with loans discharged due to death, loans discharged due to severe disability are essentially cancelled.  Neither the disabled person nor his or her dependents are responsible for repaying the debt. (If the child recipient of a Parent PLUS Loan becomes severely disabled, the parent borrower must still repay the loan.)  However, unlike in the event of death, loan dischargement due to disability is not granted immediately. Borrowers are subject to a three-year monitoring period, during which time they must provide documentation to Nelnet annually proving that their earnings from employment do not exceed state-specific poverty thresholds.  In addition, during the monitoring period, borrowers may not obtain a new federal student loan or receive a disbursement from an existing loan. Disabled borrowers are not required to make any loan payments during the monitoring period, but loan dischargement is not formally granted until the monitoring period is complete. Failure to comply will all the requirements during the monitoring period can result in the reinstatement of a borrower’s repayment obligations.


Tax Implications of Loan Dischargement

The tax implications of loan dischargement have changed since the passage of the Tax Cuts and Jobs Act in 2017.  Prior to the passage of this legislation, which took effect on January 1, 2018, discharged loan balances were treated as taxable income for the year that dischargement was granted.  The Tax Cuts and Jobs Act removed this provision from the tax code, which is great news for borrowers. Disabled borrowers whose monitoring periods began in 2015 or later will not be subject to pay any income tax at the time when loan dischargement is formally granted.  However, there is a slight catch - this form of tax relief is set to expire at the end of 2025. Unless an extension is granted or the tax relief is made permanent, disabled borrowers who begin the three-year monitoring period after 2022 will be required to pay income tax on discharged loan balances for the year when dischargement is formally granted.  If you wish for tax relief from loan dischargements to become a permanent part of the tax code, then contact your representative.

Edmit's advice helps you to be better off after graduation.

Merit and financial aid estimates based on your student profile

Earnings estimates and financial scores for your college and major

Recommendations to save thousands on college

I'm ready

Sign up for updates

Popular Tags

Financial Aid and Scholarships* Cost of College* paying for college financial aid FAFSA grants and scholarships Student Loans* Saving for College* federal student loans college tuition 529 plan cost of attendance expected family contribution financial aid award Salary and Career* college financial planning private student loans taxes college savings plan room and board on-campus housing merit scholarships college expenses federal financial aid merit-based financial aid private universities public universities budgeting for college edmit hidden gems parent PLUS loan college costs edmit team college applications living expenses CSS profile education expenses financial need income application fees financial aid appeal off-campus housing career loan forgiveness affordable college choosing a major college majors loan repayment student loan assistance work-study application fee waivers degree programs edmit scholarship institutional aid net price SAT choosing a college in-state tuition prepaid tuition plans private scholarships repayment plans ACT budget college search college visits free tuition international students internships need-based financial aid need-blind colleges qualified higher education expenses retirement savings southern colleges standardized testing student loan debt tuition discount tuition guarantee tuition payment plans 401k UGMA UTMA applying to college college ranking systems college spending credit score discretionary income education savings accounts fees financial literacy full ride scholarship grants health insurance options investment ivy league schools liberal arts degree meal plans midwestern colleges need-aware colleges out-of-state tuition saving school-based scholarships state aid western colleges 568 presidents group Inversant MEFA asset protection allowance best price campus life college advisor college credits college deposit college transfers concurrent enrollment cost by region cost by state crowdfunding dorms early decision educational expenses esports fee waivers financial wellness for-profit universities fraternities and sororities full tuition gap year graduate school home equity loan income share agreements line of credit lists medical expenses medical school military benefits net price calculators new england colleges non-profit universities out-of-state students percent need met private college consultant small business state schools student bank accounts student organizations title IV schools travel expenses tuition decreases tuition increases tuition insurance tuition reciprocity undocumented students