If a borrower dies, his or her loan is dischargeable. In the case of a PLUS loan, if the student for whom a parent obtained a PLUS loan dies, the borrower’s loan is discharged. Any endorser is released from his or her repayment obligation upon discharge of the borrower’s loan.
If the loan is made to two borrowers as co-makers, the loan is dischargeable as a death claim if both borrowers have died or if one borrower had died and the other borrower has had his or her obligation to repay the loan discharged on another basis (such as bankruptcy).
If a lender receives what it believes to be reliable but unofficial notification of a borrower’s or dependent student’s death (in the case of a PLUS loan taken out on the dependent student’s behalf), the lender must suspend any due diligence activities on the loan for up to 60 days and diligently attempt to obtain an original or certified copy of the death certificate (or a photocopy of either).
In the event of an exceptional circumstance and on a case-by-case basis, the guarantor’s CEO may approve a discharge based on other reliable documentation.
If additional time is needed to obtain documentation, due diligence may be suspended for up to an additional 60 days, for a total of 120 days. If documentation is not received, the lender should treat the period of suspension as though forbearance had been granted. A signed forbearance agreement is not required for this period. The delinquency status, if any, that existed on the loan before the lender suspended it due diligence remains. The lender must resume due diligence immediately at the level of delinquency at which it was suspended.
Discharge When Guarantee is Lost
If a loan has lost its guarantee due to servicing errors, the servicing violations must have been cured before the date the lender determines that the borrower or dependent student died. If the violations were not cured before the date of the death, the lender must discharge the loan—even though the balance will not be reimbursed by ISAC.
After receiving an original or certified copy of the borrower’s or student’s death certificate (or a photocopy of either) or notification of discharge approval from the guarantor, the lender may not attempt to collect on the loan from the borrower, the borrower’s estate, or any endoser.
Timely Filing Deadline
A lender must file a death claim within 60 days of receiving an original or certified copy of the death certificate (or a photocopy of either). If the claim is not filed by the 60th day, the guarantor will still purchase the claim, unless 1) the lender incurred due diligence or timely filing violations that were not cured before notification of the borrower’s death, and 2) the violations were based on an earlier delinquency and resulted in cancellation of the loan’s guarantee. The claim, however, will be subject to an interest penalty, and the lender will be required to repay all interest benefits and special allowance payments for amounts received or otherwise payable after the expiration of the 60-day filing deadline.