There’s no easy answer to the question of what happens to a student loan if a co-signer dies, but much depends on the nature of your individual loan agreement. You may be able to continue with the loan as long as you keep on making regular payments. However, some lenders will require you to find a new co-signer, or even make the loan due upon the death of a co-signer.
A federal PLUS loan can be discharged upon the death of either the student or a co-signer. While the primary borrower for a PLUS loan for undergraduate minor students usually is a parent, graduate students and students in professional degree programs can also take out PLUS loans and will need a co-signer if their credit isn't strong enough to be approved on their own. For other federal student loans, send the death certificate to the loan servicer. It usually takes a few weeks for the death to be verified and recorded. Any payments made after that are either refunded to the borrower or issued to the estate.
Most Obligations Still Stand
For many private student loans, the death of the co-signer doesn’t change the obligations of the primary borrower. Typically, if a co-signer dies, the loan isn’t affected as long as payments continue to be made. You’re still responsible for the payments --the role of the co-signer is to serve as insurance for the lender in case you fail to take care of your own obligations. Particularly if you've been making regular payments for an extended period, the lender may decide that because the loan already has been issued, and there's no indication that you're a worse risk than anticipated, the agreement should remain in force.
Death No Excuse
Should the lender want to press for payment, death does not relieve a co-signer of his responsibility to repay a private student loan. If you subsequently default and can't reach an agreement on a repayment plan, the lender can seek funds from the co-signer's estate – though there usually is a time limit to make a claim against an estate before it is closed.
Paying It Off
Some loans are structured to become payable upon the death of either the borrower or the co-signer. If that’s the case, you’ll have a short window to refinance or consolidate -- and find another co-signer, if necessary -- or the lender can seek to collect the balance. If your lender considers you to be a significant risk without the co-signer, it may try to press the deceased’s estate for payment quickly to protect its interests.