Policy Frequently Asked Question: Parent PLUS Loans Following Death of the Student

What happens to a parent PLUS loan if the student dies during or after disbursement?

In common policy “disbursement” typically means the single transaction in which a Federal Family Education Loan Program lender sends loan funds to a school or borrower. “Delivery” refers to the school’s moving loan money from the school’s account to the borrower’s, or — in the case of an individual disbursement check — the school’s delivering the disbursement check to the borrower.

If a dependent student dies prior to the first disbursement of a parent PLUS loan, the school must return the loan funds to the lender without delivering them. The lender then must cancel the loan.

If the student dies between the date of delivery of the first disbursement and the date of the second disbursement, the school should notify the lender of the student’s death and advise the lender to cancel the second disbursement. The school must perform a return-of-Title-IV-funds calculation and, based on that calculation, return to the lender any necessary funds from the first disbursement. The PLUS-loan borrower is eligible for a loan discharge of the remaining amount of the first disbursement, based on the death of the dependent student.

If the student dies after the lender’s disbursement of loan funds but before the school delivers those loan funds, the school must return the loan funds to the lender. The school may not deliver loan funds to the account of a deceased student.

If, prior to the date of the student’s death, the lender makes both PLUS-loan disbursements, and the school delivers them, under return-of-Title-IV-funds rules — and perhaps by the school’s own refund policies — the school must return certain funds to the lender. The PLUS borrower is eligible for loan discharge on any balance that remains after the school’s refund and the return of applicable loan funds.

The Common Manual, subsection 8.9.D, provides extensive detail regarding the treatment of FFELP-loan funds with respect to the death of a borrower or student during the loan disbursement-and-delivery process.