If you’re quickly reaching retirement age but still dealing with the burden of student loan debt, you’re not alone. According to the Consumer Financial Protection Bureau (CFPB), “The number of consumers age 60 and older with student loan debt has quadrupled over the last decade in the United States.”
Student loans can affect your credit score and make it almost impossible to live on the retirement income you originally planned for. It’s important to develop realistic strategies for maintaining financial stability in retirement if you still have student loans to pay off.
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What If You Retire With Student Loans?
There are several consequences you may face if you go into retirement with student loans. You might need to:
- Continue working into retirement.
- Put off important medical procedures or other healthcare expenses.
- Sacrifice some of your retirement savings and try to live below your means.
- Allow the government to garnish your Social Security benefits to pay off student loans.
Why It Happens
More and more older individuals are facing student loan debt as they approach retirement age. There are a number of reasons this scenario may occur. The most common reasons include the following:
- Cosigning: Parents or grandparents may cosign on student loans for their children or grandchildren. If these children can’t pay or they default, it’s up to the cosigners to pay off student loans.
- Going back to school: Individuals who went to school in their later years may face student loan debt for years to come if they financed their continuing education.
- Changing financial situations: Those approaching retirement may not have been able to follow their financial plan due to extenuating circumstances, such as the 2008 financial crisis. These retirees may find themselves unable to make student loan payments due to a loss of income.
How to Avoid Student Loans in Retirement
If you’re considering taking out student loans to further your education or cosigning on loans for a family member, you may be concerned about your retirement. However, there are several strategies you can implement to prevent dealing with student loan debt in retirement age.
Avoid Certain Repayment Plans
If you’re offered a repayment plan, be sure you review the details before agreeing to it. Some repayment plans include high interest rates or monthly payments you may not be able to afford. To avoid default, only agree to a student loan repayment plan that’s realistic for your budget, even in retirement.
Avoid Taking on More Payments
If you’re struggling with student loan debt in retirement, the last thing you need is to take on another loan or credit card debt. By avoiding more debt, you can focus on paying off your student loans, then living debt-free on your retirement income.
Create/Update Budget
When you retire, your income changes and you’ll rely on your retirement savings, such as your 401(k) or IRA account. It’s important to update your budget to compensate for your new income level, while still budgeting for your student loans.
Make Extra Payments
If your budget has a bit of wiggle room, use it to make extra payments on your student loans. The more payments you make, the faster you can pay off the debt and begin living your retired life without student loan payments in the budget.
Make Bi-Weekly Payments
When you make bi-weekly payments on your student loans, it speeds up the process of paying off your debt. The sooner you can pay these loans off, the less money you’ll waste paying interest on your debt.
Pay Off Capitalized Interest
Capitalized interest is what’s added to the principal balance of your student loans when you postpone paying them off. This interest is dangerous because it’s what increases your debt total instead of decreasing it. Make payments on your capitalized interest so you can begin to chip away at the actual loan balance.
Refinance Your Loans
If you’re finding it impossible to pay off your student loans with the terms you have now, consider refinancing your loans. You may be able to consolidate different loans into one monthly payment or renegotiate your current interest rate.
Set Up Auto-Pay
The worst thing you can do for your credit and financial situation is to miss a student loan payment and pay late payment penalty fees. Set up automatic payments that are withdrawn from your account each month to ensure your payments are made on time and never missed.
Take Advantage of Tax Deductions and Credits
As a senior citizen living on a fixed income, you may qualify for helpful tax deductions and benefits. Look into the tax credit for the elderly or disabled or consider itemizing your deductions instead of taking the standard deduction. If you paid interest on your student loans throughout the year, you may qualify for a student loan interest deduction with the IRS.
How to Cope With Student Loans in Retirement
If you’re facing student loan debt while attempting to retire, there are ways you can cope with this debt while maintaining financial stability. To make it easier to deal with student loan debt after retirement, you may need to:
- Continue working: You can find work-at-home jobs for seniors that will help you make a little extra cash you can use to pay off your student loans.
- Put co-borrowers on a payment plan: If you cosigned for student loans and the co-borrower isn’t helping, try establishing a strict payment plan so you can get assistance paying off the debt faster.
- Contact your lender: Your loan provider may be willing to work with you by forgiving some debt, lowering your interest rate, consolidating loans, or creating a more realistic repayment plan.
If you’re living on a fixed retirement income, it may feel impossible to pay off your student loan debt. However, creating a budget and making it a priority to pay off this debt is the best way to eventually live debt-free in retirement.
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