6 ways to deal with outstanding student loan debt at retirement

Student loans are not just a problem for young people. At the end of 2020, borrowers 50 or older accounted for about 22% of the country’s $1.6 trillion student debt burden, AARP reports.

Most of the debts held by over 50 borrowers are the result of the borrower’s education. But many people have student loans because they took out federal Parent PLUS loans or co-signed a private loan for their children.

If you’re in your 50s, 60s, or older and have student loans, retirement may feel out of reach. But there are some ways to deal with your debt – it doesn’t take forever to work.

6 ways to deal with student loans in retirement

To pay off your student loans, you can make all your efforts to get rid of as much of the balance as possible. Or you can reduce the suffering of your retirement budget by keeping your payments low, even if it means you may never get out of debt.

Neither of them is the right or wrong approach. However, your options will vary based on the type of loans you have. Follow these tips for dealing with student loans in retirement.

1. Avoid Federal Student Loan Refinancing

With interest rates low, it may seem tempting to refinance your student loans with a private lender. But this is not a wise move if you have federal loans, especially when you are planning to retire.

Your income will likely decrease when you retire. When you have federal loans, you typically qualify for income-based repayment plans, in which your payments are based on your income. (More on these soon.) Plus, federal loans offer much more relief options than private loans. For example, most federal student loans, including Parent PLUS loans, are covered by an administrative withhold on payments and interest through January 31, 2022, as part of COVID-19 relief measures.

Giving up all that flexibility probably isn’t worth it, even if you can save with interest. However, if you have private student loans, go ahead and refinance if you’re going to lower your payments. You can reduce the interest rate significantly if you improve your credit since you took out the loans.

2. Lower Federal Payments with Income-Based Payments

If you have federal loans that you obtained on your own, there are four different income-driven (IDR) payment plans that you can qualify for. These plans will limit your payments to a percentage of your discretionary income. Your options are:

  • Income-Based Repayment (IBR)
  • Income Emergency Payment (ICR)
  • Pay as you earn (PAYE)

said Betsy Mayotte, president and founder of the Institute of Student Loan Counselors. “They don’t have to be back-to-back. Whatever balance is left, including interest, is forgiven at the end of either 20 or 25 years.”

Instead of trying to break down the hair on the differences between each, you can use the loan simulator at studentaid.gov to see which programs you qualify for and what your payments are.

In the past, any balance that was exempt was considered taxable income in the year of the exemption. But the US bailout, the stimulus bill that passed in March 2021, includes a provision that makes the exemption tax-exempt until December 31, 2025. Obviously, that won’t help anyone just starting to pay off a 20 or 25-year plan. Mayotte notes that borrowers are hoping for the best, while preparing for a potential tax bill.

“They should assume there could be what we call the tax bomb at the end of this, but there’s a chance there isn’t and Congress will extend it beyond 2025,” Mayotte said.


If you take out Parent PLUS loans for your child, the Income Conditional Repayment (ICR) is the only income-based plan for which you will be eligible. You will need to consolidate your loans first.

Contingent income plans are not as generous as other income-driven plans. Your payments are based on 20% of your discretionary income. For other income-driven plans, the cap is 10% to 15%.

4. Pay off as much of your loans as possible

Unfortunately, your options are very limited if you have private student loans. “The loans have very few, if any, payment options, or fewer relief opportunities,” Mayotte said.

The best solution is usually to pay as much of the balance as possible. Consider whether you can live on a minimal budget while working for an extra year or two. Putting all of your extra cash into paying off loans can dramatically reduce your payments in retirement, even if you can’t get rid of the balance completely.

If you don’t want student loans looming over you for decades, this may also be the best approach to federal loans, even if you can lower your payments with an income-based plan. Keep in mind that although income-driven plans typically lower your payments, you may end up paying more over time. That’s because your payments span 20 or 25 years versus the standard 10-year window.

5. See Forgiveness for Student Loan If You Have a Disability

If you have a disability, you may be one of 323,000 federal borrowers who will receive automatic student loan forgiveness recently announced by the Department of Education. Borrowers who are deemed completely and permanently disabled by the Department of Veterans Affairs or the Social Security Administration will be automatically forgiven of their loans in many cases.

However, even if you don’t get pardon automatically, you can still qualify if you have a disability. If you have not been notified of your loan withdrawal, you can apply manually and provide a doctor’s certificate.

6. Have a difficult conversation with your kids

If you take out Parent PLUS loans for your children, you are legally responsible for that debt. But that doesn’t mean you can’t ask them for help, especially if you’re struggling.

“This can be a really difficult conversation, but if you can’t afford these loans, even in some of the lower repayment options, it might be time to have a conversation with the kids you took these loans for and get them to contribute,” Mayotte said.

What happens if you don’t pay?

You want to avoid defaulting on your student loans if at all possible. Student loans are rarely cancelable in bankruptcy, so your debts are less likely to go away. However, it is important that you understand what can and cannot happen in the event that you are unable to afford your payments.

Possible consequences include:

  • Get your Social Security benefits decorated. Up to 15% of your Social Security benefits can be mixed up and applied to your debt if you default on your federal loans. Despite this, the first $750 you receive per month is off-limits. Also, private lenders cannot garnish your Social Security.
  • Losing your tax refund.
  • Reserve your salary or bank account. Whether your loans are public or private, you may be sued for unpaid student loans. If the lender gets a judgment against you, they can garnish your bank account or your paycheck if you’re still working.
  • Tank your credit score. Once you report your payment as late, the black mark will remain on your credit report for seven years. However, the damage will be more severe in the first two years.

However, you will not be thrown in jail for overdue student loan debt. Don’t believe any debt collector threatens you with arrest. (Note: It is possible that if you are sued and summoned to court, you may be arrested if you do not appear.)

If you cannot afford the payments, it is important to speak to your provider as soon as possible. You will often have a few options for obtaining federal student loans. Although private lenders are not required to make any concessions, they are often worth letting you make a lower down payment rather than sue you.

Retirement with student loans is possible. But it is essential that you have a plan before retirement and contact your lender immediately when you cannot pay.

Robin Hartell is a certified financial planner and senior writer for The Penny Hoarder. She writes a personal financial advice column Dear Penny. Send your tough financial questions to [email protected]

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