The state of New Jersey has often been criticized for its policy of requiring parents who co-sign student loans for their children, to pay back the loans even if the child passes away. The state has now changed its policy.
Generally speaking, when a person passes away any of his or her outstanding creditors must be paid, if claims are made as required by law. There are very few exceptions to that general rule.
However, one of the biggest exceptions is with federal student loans.
If the student passes away with outstanding student loan debt, then the federal government discharges the debt. Even many private student loan companies do the same.
The state of New Jersey has always been different with its state run student loan program, as Financial Advisor discusses in "N.J. Discharging Loans For Families of Deceased Students."
Not only would New Jersey still expect payment from the estate, it would require co-signers to pay, if the estate was unable to do so. This left many families deep in debt over the unrepaid loans of their deceased children.
The policy was roundly criticized for the burden that it left on grieving parents.
Attempts had been made to change the law and the state's policy to no avail. However, the state legislature has recently reversed course and will now discharge the debt of deceased students.
If you have a loved one who has student loans and who has passed away, make sure that you talk to an estate planning attorney about how to properly discharge the debt. You can now do so, even in New Jersey.
Reference: Financial Advisor (Feb. 21, 2017) "N.J. Discharging Loans For Families of Deceased Students."