Student Loan Debt in Retirement: What To Do?
Whether they’ve had student loans to return to school or are repaying loans for children or grandchildren, more older adults are defaulting on student loan debt in retirement than in the past. The Consumer Financial Protection Bureau (CFPB) earlier this month reported, “… in 2015, nearly 40 percent of federal student loan borrowers age 65 and older were in default.”
The CFPB found that the number of older adults with student loan debt has quadrupled over the past 10 years, and the amount of individual loan debt has doubled. Between 2005 and 2015, the number of older adults with one or more student loans increased from 700,000 to 2.8 million, and the debt load doubled from $12,000 to $23,500. In addition, the CFPB found that 75 percent of older adults (approximately 2 million) with student loans used them for their children’s or grandchildren’s education. More than half of co-signers on student loans are over age 65.
Older adults who are carrying their own student loan debt likely returned to school later in life and are paying for their own education, according to CNBC. Older borrowers may have taken out loans to complete a college degree or change occupations.
For older adults on already-fixed incomes, maintaining student loan payments can be a challenge. The CFPB found that older adults with student loan debt in retirement are more likely to go without necessary health care, including prescription drugs. The situation becomes even more complicated in default situations that reduce older borrowers’ limited incomes.
To repay federal student loans that are in default, the government can garnish an individual’s Social Security payments. The CFPB notes that approximately 115,000 people age 50 and older are experiencing Social Security garnishments to pay off their student loan debt. The government also may collect from tax refunds and wages as well.
Social Security payments can be garnished by as much as 15 percent of the total benefit or the amount that exceeds $750 per month, depending on which is lower, according to U.S. News and World Report. The Government Accounting Office found that some individuals with garnished student loan debt may be left with Social Security payments that are below the threshold for poverty.
Some student loan borrowers may believe the debt ends when they retire; however, loan debt is not canceled until a borrower dies. In addition, most student loan debt isn’t discharged in bankruptcy, regardless of the individual’s inability to repay.
If you have student loan debt and aren’t sure how to manage it, CNBC recommends the following:
- Stay current on your payments
- Avoid defaults that could cause your wages, Social Security and other government payments to be garnished.
- Keep in touch with your loan servicer about your employment and repayment plans.
- Consider income-driven repayment for federal loans
- Three income-driven plans are available: “pay as you earn,” income-based and income-contingent).
- This strategy may lower your payments on federal student loans. Payments are based on 10 to 20 percent of your discretionary income.
- Loans are forgiven after 20 to 25 years of timely payments.
- Think about consolidating federal loans or refinancing private loans
- Federal loans may qualify to be consolidated.
- Private loans may be refinanced, which can reduce interest rates and monthly loan payments.