Student loan debt isn’t reserved for the young.
In fact, it’s becoming a bigger problem for those well beyond the traditional campus quad years.
Of the $1.5 trillion student debt Americans owe, people age 50 and older owe 20% of it — $289.5 billion. And borrowers 62 and older held $72.9 billion in outstanding federal student loans, up $10.4 billion from the previous year, according to the U.S. Department of Education.
Why so much? The majority of the loans are for children’s and grandchildren’s education, although some of it is also for career changers taking out later-in-life loans for their own education.
Unfortunately, with the prospect of retirement on the horizon, there’s a lot less time to pay off those student loans, and there can be painful consequences if you don’t — including having your Social Security wages garnished.
If you’re among those who are closer to retirement than the legal drinking age, we have solutions for dealing with student loan debt when you’re over 50.
Paying Off Student Loan Debt After Age 50
Everyone has their own reasons for staring down student loans when they’re on the verge of retirement. And while we have plenty of strategies for paying off student loans in general, we’re here to address some of the most common scenarios that lead to student loan debt after 50 and offer tips on how to pay them off.
1. You Took Out Federal Student Loans
You may have heard this before: Your kids can borrow for college, but you can’t take out loans to retire.
Regardless of whether you took out federal loans for your own education or your kid’s, saving for retirement should still be a priority. In fact, it could potentially save you thousands on student loan repayments.
If you have federal student loans, you can qualify for an income-driven repayment plan, which calculates your monthly student loan payments based on your income. But your contributions to a 401(k) or IRA are pre-tax dollars, which reduce your salary in the eyes of the federal government. And a smaller salary reduces your monthly student loan payment.
Depending on the repayment plan, after 20 to 25 years of on-time payments, the remaining balance will be forgiven, although that amount will be counted as taxable income.
“If that’s the case, you’re in your 70s — your income traditionally is lower,” said Amy Irvine, a Certified Financial Planner and founder of Rooted Planning Group. “So you may end up paying less income tax on the amount that’s forgiven with the income-driven plan than you would have if you had made the full payment.”
If you’re 50 or older in 2020, you can contribute up to $26,000 to your 401(k) and up to $7,000 to your IRAs.
Another option for socking away money to lower your taxable income: a Health Savings Account. In 2020, you can contribute up to $3,550 as an individual or $7,100 as family to an HSA if you have a high-deductible health plan. And as a bonus, you’ll probably appreciate the extra money for health care as you continue to get older.
“One of the biggest reasons that a financial plan ‘fails’ in retirement is because of medical expenses,” Irvine said.
2. You Took Out (or Co-Signed) Private Student Loans
If you have a private student loan staring you down — either ones you took out or that you cosigned for your student — you’ll need to get a little more creative when it comes to paying it back.
Because it isn’t a federal loan, you typically do not have the income-driven options that the federal loans offer. However, it doesn’t hurt to call your lender and ask about extended payment plans.
If you’re married and one partner earns significantly more, ask your tax adviser whether filing your taxes as “married filing separately” could help you qualify for an income-driven plan.
If you own your home and car, consider using a home equity loan rather than taking out a loan against your vehicle, Irvine advised.
“[Your home] is a more stable asset than a car that’s depreciating,” she said.
Regardless of the strategy you choose, the ultimate goal should be to get the payment low enough so the student can take over the payments — and eventually the loan — themselves.
3. You Have Multiple Loans With High Interest
If you have federal and private loans, you may be looking for a one-stop solution, like consolidation. However, that could negate some of the benefits you get with federal loans.
“Federal loans are dischargeable if the borrower is permanently disabled or dies,” said Joseph Valenti, senior policy advisor with the AARP Public Policy Institute. “Doing the private refinancing means losing some of those rights and options.”
However, that doesn’t always mean holding onto high-interest loans for death and disability benefits is the best option financially, Irvine noted.
“Let’s say you’re paying 7% on those direct loans, and you can go out and refinance those into a private loan for 3%,” she said. “Then you may want to up your disability policy so that you know you have the money to repay that loan or take out a life insurance policy so that if something happens to you, the loan can be paid off.”
4. You’re Paying Your Child’s Federal Student Loans
So there’s the obvious answer to this one: Tell your kid to start footing the bill for their own student loans.
But you’re a parent (or grandparent), not some heartless thug. You want to help your kids if they can’t afford those astronomical student loan payments. But your offspring can still do their part to help by getting themselves on an income-driven repayment plan.
“Even if the parent or grandparent has to make that minimum payment, it’s still much better than the full payment,” Irvine said.
5. Your Kids Are Heading to College and You Still Owe on Your Own Student Loans
If your kids have dreams of campus life, but you’re still paying for your own college years, it’s best to come up with a strategy before they start applying.
Scholarships and part-time jobs during the school year and summer jobs can help your child put a dent in their debt, giving them a better chance to manage their repayment without your help.
But your strategy for paying off loans could also require a little creativity — and working with your kid’s prospective school.
“One of my clients had a really high interest rate student loan that they were repaying,” Irvine said. “We actually used the Plus loan to pay off their loan, and then figured out how to do an installment payment to the college to get the student’s tuition covered.”
6. You’re Ignoring the Problem
This one is on you.
It’s stressful, it’s confusing and sometimes unfair, but ignoring the debt is the worst mistake Irvine said she sees clients make.
“They don’t know what the solution is, so they don’t pay attention to it,” she said. “They don’t know what steps to take, so they don’t take any step.
“Inaction is action. If you don’t pay attention to this, you will suffer the consequences.”
Those consequences begin with your Federal Family Education Loan (FFEL) or direct student loan becoming delinquent the first day after you miss a payment. Miss payments on your loans for 270 days and they enter default.
If student loans in your name end up in default, those loans could be sent to collections, and your wages, tax returns and Social Security benefits can be garnished up to 15% for repayment.
If you’re depending on Social Security benefits to cover medical expenses and your retirement, that doesn’t leave much money — if any — to live on. And federal student loans are among the debts that can be collected until death, so there’s no escaping them.
If you’re not sure where to start, talking to the financial aid offices at the colleges you or your child attended is an option, as is investing the money in a financial planner or coach who can talk you through your options as well as first steps.
Whatever route you take, tackling your student loan debt rather than ignoring the problem is the best way to protect your financial future. After all, you’re old enough to know better, right?
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.