Key points
- Monthly payments in retirement can change sharply depending on Social Security, pension income, and IRA withdrawals.
- Federal programs often offer greater protection than refinancing, which can trade off the safety of lower interest rates.
- Missing payments late in life can result in garnishments and offsets – so staying on top of payments is essential.
Student loan debt represents a significant financial burden for a large number of Americans. While you may think that only young professionals are saddled with student loan debt, some older Americans are heading into retirement with student loan debt.
According to the latest Data from the US Department of EducationNearly 9 million adults over age 50 are still paying off federal student loans. With millions of older Americans taking out student loans, many face an uncomfortable burden during their retirement years.
Let’s explore the challenges of retiring with student loans and how to deal with this debt in retirement.
Would you like to save this?
We’ll email you this article, so you can come back to it later!
Challenges of repaying student loans in retirement
If you’re an older American with student loan debt, you may find yourself stuck financially. Whether you cosign student loans for your children or take out loans for your own education, the financial burden can put a damper on your retirement plans.
Student loans are never a fun expense in your budget. But as you transition into retirement, these debts can put new stresses on your life. Some of the challenges you may face as an older American carrying student loan debt include:
- Limited ability to save for retirement:In the years leading up to retirement, you may not have enough financial scope to set aside money for your golden years.
- Work longer:When you add a loan payment on top of other living expenses, you may not have the financial means to retire on your preferred timeline.
- Cost budgeting: Retirees tend to have higher health care costs. If you’re dealing with student loans, it can be difficult to balance your other costs.
- Decorations:If you’re struggling to repay your federal student loans and are in default, the government may seize up to 15% of your Social Security benefits and portions of your tax refund.
How to Deal with Student Loan Debt in Retirement
The truth is, paying off your student loans in your retirement years is a challenge. If you plan to retire before your student loans are paid off, here are some tips on how to handle this burden.
Carefully evaluate your finances before you retire
Before you take the leap into retirement, take an honest look at your financial situation. If you carry student loan debt, this is one payment you can’t afford to miss. But, of course, you have other living expenses to consider.
If at all possible, don’t move forward with retirement until you get to a place where you can comfortably afford your student loan payments during retirement. If that’s not possible, be aware of the financial distress you may feel during retirement.
The key is to head into retirement with a complete understanding of your finances. You may decide that your finances are not ready to support the retirement you planned for. Depending on your situation, you may choose to work longer or cut back on other retirement expenses to manage your student loan payments.
Consider an income-driven repayment plan
If you carry federal student loans, you may be able to access income-driven repayment (IDR) plans. Essentially, IDR plans take your income into account when determining your monthly payment.
If you’re interested in pursuing an IDR option, get started with Loan simulation. This can help you determine what your student loans might look like. After choosing the right IDR solution for your situation, you will need to fill out a formal application with the federal government.
The federal government defines discretionary income as the difference between your annual income and 150% of the poverty line for your household. Any of these plans may help you make ends meet while living on your retirement income.
And here A A quick look at those options:
- Payment: Typically requires you to pay 10% of your discretionary income toward your student loans. But the monthly payment cannot exceed the payment associated with the standard 10-year payment plan and continues for 20 years.
- IBR plan:Typically requires you to pay 10% or 15% of your discretionary income toward your student loans. However, the repayment amount cannot exceed the payment associated with the standard 10-year repayment plan.
- ICR plan:It generally requires you to pay 20% of your discretionary income.
Important note:PAYE and ICR will be phased out before 2028, while the new Repayment Assistance Plan (RAP) will begin in July 2026.
Make payments on time
Paying off your student loans is difficult at any age. No matter where you are on the payment schedule, make it a priority to keep up with on-time payments. If you miss payments, you risk putting your loan into default.
A defaulted loan comes with additional hurdles. For example, you may not be eligible for some IDR options if your loan is in default. Also, defaulting on your student loans will likely have a negative impact on your credit score.
Look for student loan forgiveness opportunities
Depending on your situation, student loan forgiveness may be an option. It’s a good idea to explore all of your student loan forgiveness options during retirement. If you spend time in the appropriate occupation, you may be eligible for occupation-based student loan forgiveness.
For example, the Public Service Loan Forgiveness (PSLF) program offers loan forgiveness after 120 payments and 10 years of service. Some eligible professions include government employees, teachers, and others.
If you are on an income-driven repayment plan, your loans will also be forgiven after the repayment period (20 or 25 years). It doesn’t sound great, but it’s a viable option to keep your payments very low, and you don’t have to worry about debt.
Take a look at our full list of student loan forgiveness options today.
Consider refinancing
If you refinance your federal student loans into private loans, you will give up any of the borrower protections offered by the government. But if you can qualify for a low enough interest rate, it may be the right decision.
The benefit of refinancing is that you may reduce the interest rate you pay on the loan. You can also choose a short repayment period, which can result in significant interest savings. If you aim to pay off your student loans in full either in retirement or in the years leading up to retirement, refinancing may be a good fit.
But before refinancing, consider all of your options. If you do go ahead, look for the lowest interest rate possible. Also consider combining other debt payoff strategies, such as taking on a side hustle or cutting expenses, while you focus on paying off this debt.
Let them ride
Although it sounds strange, it may also make sense to allow your loans to “roll over” — meaning making the lowest monthly payment allowed and not doing anything more than that. It is possible that at this time, it is best to have your student loans with you.
Federal student loans are repaid upon death, which means your children won’t have to deal with them. Most private loans (as long as they are not co-signed) work the same way.
In some situations, you need to take care of your living expenses now, and you simply need to get an income-driven repayment plan, make the minimum payments (which could be even $0), and do nothing more than that.
Bottom line
In an ideal world, you would cancel your student loans before heading into retirement. It is possible to take out student loans in retirement. Just make sure you have a plan to pay it off and explore all your options like paying off debt or refinancing.
Editor: Claire Tuck
Reviewed by: Robert Farrington
The post How to Deal with Student Loan Debt in Retirement appeared first on The College Investor.
