Heading Into Retirement With Student Loans 2023
The Consumer Financial Protection Bureau (CFPB) says that between 2012 and 2017, the number of people with student loans who are 60 or older rose by at least 20%. Also, the amount of student loan debt in more than 75% of states went up by at least 50%.
When put together, these two numbers show a worrying trend that could cause a lot of trouble for older Americans’ finances in the coming years if they have to keep paying back loans after they retire.
Why It Takes Place
Most older people who have student loan debt did not take out the loans to pay for their own college. The CFPB report found that 73% of people got loans for their children or grandchildren or cosigned for them. Only 27% said they got loans for themselves or their spouses.
Cosigners of loans can get into trouble if the people who got the loans don’t pay them back when they said they would. By cosigning, they are just as responsible for paying back the loan as if it were theirs alone.
Loans for college and Social Security
Your student loan debt can take up to 15% of your Social Security payments, but your monthly benefit can’t go below $750. Also, garnishment can’t happen until two years after you stop paying on a loan. This gives you plenty of time to talk to the loan servicer about changing the payment plan.
Cons of Paying Off Loans After Retirement
Since most student loan debt can’t be wiped out by filing for bankruptcy (it is possible in some rare cases), pre-retirees who still owe money often have to deal with some or all of the following problems.
They have to work past the normal age of retirement. Their Social Security and other retirement income may not be enough to cover their living costs and the loan payment.
They give up saving for retirement. A study by the Association of Young Americans (AYA) and the AARP found that 31% of baby boomers say that loan debt has either made it harder for them to save for retirement or forced them to take money out of their nest egg before they were ready.
They put off getting medical care. Also, the AYA/AARP study found that about 9% of seniors put off getting medical care because of student loan debt.
They have problems with their credit. Credit Sesame says that it can be hard for older people with at least $40,000 in student debt to get the new loans they need to fix up their homes, buy cars, or pay for other big expenses. The AYA/AARP study also found that 32% of people didn’t buy homes because they still had student loan debt.
They can’t take care of their families. More than 25% of boomers say that their student loan debt kept them from giving money to family members in need.
The government takes their Social Security benefits. According to the American Seniors Association, retirees who can’t pay back their federal student loans on time may find that their lenders have taken some of their Social Security benefits or tax refunds.
How to keep problems with student loans to a minimum
There are some good things you can do both before and after you take out a student loan or cosign for one.
Talk to people in an honest way before you borrow.
Before you cosign for a loan, talk to your co-borrower about how much you need to borrow and how long it will take to pay it back. Talk about how scholarships, cheaper colleges, or other options could help reduce the amount of debt.
Plan for what could go wrong.
Before you agree, make sure you can pay the loan payments on your own if your co-signer can’t. If other family members offer you a safety net, ask them to write it down in case they forget.
Check on the loan
After you borrow money, make sure the loan servicer sends you regular statements that show the amount you owe, how much you’ve paid, the interest rate, and when the loan will be paid off. File a complaint with the Consumer Financial Protection Bureau (CFPB) if you don’t get this information on time or if you get too many annoying phone calls or letters.
Know how you can pay back your debt.
Programs like deferment and forbearance can let you temporarily stop making payments if you are having trouble feeding your family or paying other bills. Consolidating multiple student loans may result in smaller payments.
There are also other repayment options that might help, including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) (REPAYE). Some programs forgive an existing balance after 20 years or if you pass away.