Understandably, parents often readily agree to cosign their child’s student loans for college. After all, who wouldn’t want their children to be able to attend college and achieve their goals. Unfortunately, some parents are in the tragic position of having student loan debt collectors come after them to repay cosigned student loans taken out by their deceased children. The New Jersey Star-Ledger reports about one such family, whose son died at the age of 30. When he died, he had $27,000 worth of loans, which Sallie Mae expected his parents to pay. The parents asked Sallie Mae to forgive the loan, but they refused. According to the news story, the Smart Option Student Loan program – which provides automatic loan forgiveness if the primary borrower dies – was launched in 2009, but this couple’s son had loans that were older.
U.S. Department of Education loans are forgiven if the borrower dies, as are parent PLUS loans. However, when a loan greater than $600 is forgiven, it is reported to the IRS and is considered taxable income. The report should be listed under the primary borrower’s social security number, but all too often it is sent under the cosigner’s social security number. If you receive the form by mistake (it’s called a Form 1099-C), you should ask the entity that issued the form to correct it.