Co-Signer Passed Away

Denise says her father co-signed for her nieces' student loans and recently passed away. Is her mother responsible now? Her mother didn't co-sign for the loans. Dave explains.

QUESTION: Denise in Texas says her father co-signed for her nieces’ student loans and recently passed away. Is her mother responsible now? Her mother didn’t co-sign for the loans. Dave explains.

ANSWER: No. However, his estate might be held responsible. When you die, what you own stands good for what you owe. And he owes—the co-signature on this student loan—so anything he owned, like for instance your mother’s and his home, would have to stand good for it. So while your mom’s not liable, anything she wants to keep that he owned—in order for her to do that free and clear—this would have to be cleared if it were a normal debt.

Now, having said that, there’s one other possibility. Federally insured student loans do not count against your estate when you die. If you become permanently disabled or you die with a student loan debt still in place, that loan is forgiven, and it does not count against your estate. I would guess—and you need to check—that would apply to co-signers as well. I think probably his passing away got him out of the co-signature, but you need to look into that. I know if it were the maker of the loan, the loan would be forgiven. Co-signer is probably the same thing—not the loan is forgiven but at least the co-signature is not held against his estate. It’s going to leave the niece on the loan by herself now, in other words, which is kind of common sense in a way but something you need to check into because we are dealing with the federal government and usually common sense has nothing to do with this.