Retiring With Student Loan Debt? 3 Things Borrowers Need to Know

A large number of older Americans have student debt. That’s a big problem. It’s easy to think of student debt as a young person’s problem. But actually, the number of people aged 60 and older who carry student loan debt has increased six-fold since 2004. The reality is that many older people end up with student loans because they either defer their payments repeatedly or take on new debt later in life to finance their kids’ education. But retiring with student loan debt could have serious consequences. Here’s what might happen if you close out your career with a pile of loans you’re still on the hook for.

1. Your Social Security benefits might get garnished if you fall behind on your payments

Just as you risk having your Social Security income garnished due to not paying your taxes, so too can those benefits be garnished if you fall behind on your federal student loan payments. And if you’re planning to have Social Security be your primary source of income in retirement, that could end up being a very problematic thing. That said, lawmakers recently reintroduced a bill seeking to prevent Social Security benefits from garnishment due to an inability to make student loan payments. If it passes, this may no longer be a concern. But either way, it’s still not optimal to be retiring with debt of any sort, including student loans.

2. You might struggle to keep up with your bills

Many retirees see their income drop substantially once their paychecks from work disappear. That’s a hard enough thing to handle without owing money in student loan form. But if you have to make a monthly payment worth hundreds of dollars at a time when you’ve taken a major pay cut, you might really struggle to maintain a comfortable standard of living.

3. You may be eligible for a more affordable repayment plan

Your monthly student loan payments may be too much to handle on your retirement income. But you may also be eligible for a different repayment plan that results in lower monthly payments. Once your retirement becomes official, you can talk to your loan servicer about your options based on your new income.

Avoiding a retirement with student debt

If you’re within a year or two of retirement and have a massive student loan balance you’re on the hook for, then you may have to resign yourself to a retirement that includes student debt payments. But if you’re younger and want to avoid that situation, there are steps you can take to make that happen. First, resist the urge to get on an extended repayment plan. This might seem like a great option when it results in lower monthly payments, but it also means you’ll be paying your debt for a lot longer, all the while racking up more interest on it. Second, don’t rush to put your loans into forbearance every time you experience a financial hardship. You might technically qualify for forbearance based on different circumstances. But if you’re able to power through and keep up with your loan payments, you might manage to avoid a scenario where you’re still carrying that debt come retirement. Finally, don’t sign loans on your kids’ behalf later in life unless you’re absolutely sure you can pay off that debt ahead of retirement. It’s a great thing to want to help your kids and minimize their debt load. But if you take out a whole bunch of loans in your 50s to help your kids get through college, you might end up struggling to pay back that debt at a time in life when you deserve to be free of financial worries. Remember, retiring with any sort of debt is less than ideal because the payments are going to take up some of your limited income. So if you’re able to shed all your debt ahead of retirement, including your student loans, you might end up enjoying that period of life much more.