What happens to the Education Loan if the Borrower Dies?

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If you are wondering what happens to the education loan when the borrower dies, the insurance company pays the amount back in this unfortunate scenario. In certain cases, the education loan can also be discharged. However, the final decision lies in the hands of the lender based on the education loan terms and conditions. Continue reading to find out what else can happen in such an unexpected and unforeseen situation.

Education Loan and Death

It is natural to wonder what happens to the education loan when the borrower dies. Will it lead to education loan cancellation or does it become mandatory to repay the loan amount to the lender by the family members?

  • Federal Student Loans: If a borrower with federal student loans passes away, their family can apply for loan discharge due to death, which forgives the remaining balance.
  • Private Student Loans: The handling of private student loans varies by lender. Some lenders discharge the loan upon the borrower’s death, while others may not. It is essential to check the specific policies of the lender regarding loan discharge due to death.

To answer this question, the following things can happen based on the loan terms and conditions-

  • Repayment by insurance company
  • Obligatory repayment by the co-borrower
  • Repayment via sale of assets

Let us find out what happens to the education loan in the situations discussed above-

Also Read: Learn all the important details of using SIPs to repay education loans efficiently and plan the repayment of the loan on time.

Repayment by Insurance Company

The insurance company pays back the education loan in case of the death of the borrower. This happens only when an applicant takes education loan insurance. It is a must-have for students because it saves the family from the financial burden of loan repayment in case of any unfortunate events. This means the financial burden doesn’t fall on the borrower’s family. They don’t have to worry about repaying the loan amount.

The loan insurance covers the net outstanding amount on the education loan. If the sum assured exceeds the outstanding amount, the nominee is entitled to reimbursement (based on the terms and conditions of the policy).

You must contact the loan provider and inform them of the situation. You will be required to provide the death certificate, insurance policy papers, and education loan sanction letter.

Applicants must, therefore, consider taking education loan insurance policies from the lender itself like the SBI RiNn Raksha and Union Bank SUD Life Shiksha Suraksha II to ensure that the liabilities of the loan shall not be faced by your family in the event of an unfortunate incident.

It’s always a good idea to review your loan agreement. In rare cases, there might be exceptions to the insurance coverage.

Repayment Obligations on Co-borrowers

If the education loan is not insured, the student’s legal heir or co-borrowers are bound to repay the education loan if the borrower dies. So, whether you take a secured or unsecured education loan, the majority of banks offering education loans require a co-signer or guarantor who takes the responsibility for education loan repayment.

The financial lender turns to the co-applicant/ co-signer/ co-borrower when the primary borrower dies or falls trapped in any other unfortunate circumstances.

Also Read: Know all about the best forex cards for Indian students in the UK to overcome the hassles of money management while studying abroad.

Repayment via Sale of Assets

Today, education loans or personal loans for education without a cosigner are popular among borrowers. In a scenario where the loan amount is not insured and the co-signer/ co-guarantor is also absent, then the education loan will be repaid through the sale of the asset or any property pledged when applied for secured education loans.

The loan then becomes part of the borrower’s estate. This means the lender might consider using assets or property owned by the borrower at the time of the borrower’s death to repay the loan. However, if there aren’t enough assets, the remaining debt might be written off by the bank.

Case Example

There have been cases where banks demanded repayment of education loans after the borrower’s death. For instance, a case in Tamil Nadu involved a bank being ordered to compensate a customer after it refused to acknowledge an insurance policy that should have covered the loan upon the borrower’s death.

Documents Required

In case of the death of the borrower, the co-applicant must inform of the situation to the lender. They are required to submit various documents to the banks to proceed with the loan repayment formalities when the borrower dies. Make sure to keep documents like death certificates and insurance policy papers. Additional documents might also be required-

  • Death Certificate: This is the primary document proving the borrower’s demise. An original or certified copy is usually required.
  • Loan Agreement: Having a copy of the borrower’s loan agreement helps the lender understand the specific terms and conditions of the loan, including any life insurance coverage details.
  • Insurance Policy Documents: If the loan had life insurance, provide a copy of the policy documents, including details like the policyholder’s name, coverage amount, and beneficiary details.
  • Nominee Details (if applicable): In some cases, the loan agreement might have a nominee designated for the insurance policy. If so, provide their information.
  • Probate Documentation (if applicable): In rare situations where the loan wasn’t covered by insurance and the estate needs to be settled through probate court, relevant court documents might be required.

This was all about education loans and death. Various solutions are the answers to the question- What happens to education loans if the borrower dies? It can be paid by the insurance company or via the sale of assets pledged when taking a secured education loan. In certain cases, the loan amount is also discharged or in other cases, it might be obligatory for the co-applicants to repay the outstanding amount. The final decision lies in the hands of the lender based on the education loan terms and conditions.

To know more about education loans, the best bank accounts for students, forex cards, and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience. 

FAQs

What happens to an education loan if the borrower dies?

The insurance company pays the education loan if the borrower dies. In certain cases, the education loan can also be discharged. However, the final decision lies in the hands of the lender based on the education loan terms and conditions.

Is it compulsory to repay the education loan if the borrower dies?

If the education loan is not insured, the financial lender turns to the co-applicant/ co-signer/ co-borrower when the primary borrower dies or falls trapped in any other unfortunate circumstances. In such a case, repayment of the education loan is obligatory.

If the borrower dies, will the education loan be cancelled?

In India, education loans typically have life insurance. If the borrower dies, the insurance usually pays off the loan, cancelling the debt for the family. In certain cases, the education loan can also be discharged. It’s wise to check your loan agreement for details.

Can an education loan be repaid with the collateral pledged if the borrower dies?

Yes. In a scenario where the loan amount is not insured and the co-signer/ co-guarantor is also absent, then the education loan will be repaid through the sale of the asset or any property pledged when applied for secured education loans.

What documents must be submitted for the education loan when the borrower dies?

You will be required to provide the death certificate, insurance policy papers, and education loan sanction letter. You might also have to provide nominee details and probate documentation based on the type and terms of the education loan availed.

How does education loan insurance work in case of the borrower’s death?


Education loan insurance provides crucial protection. If the borrower dies, the insurance company pays off the remaining balance of the education loan. This prevents the financial burden from falling on the borrower’s family or co-signers.

How does the insurance company verify the borrower’s death?

The co-applicant or legal heir must inform the lender about the borrower’s death. The family or co-applicant needs to submit several documents to the lender and the insurance company, including a death certificate, loan agreement, and insurance policy documents.

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About Shubhika Garg

Hey there! I'm Shubhika- a proud graduate in English Literature and Language from Delhi University. My journey as a content writer transitioned from online teacher into the world of words. Stepping into the domain of blogs and articles, I discovered my passion for writing growing deeper and stronger. Having said that, I have experience of writing for diverse industries in automobile, technology, ed-tech, finance and mental-health; crafting details to help you find the solution to what you are looking for. Join me as I invite you all explore and learn together.

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