The fastest-growing debt category is student loan debt, and it’s a category that is no longer limited to young professionals either. The percentage of older borrowers (ages 50 and older) who carry student loan debt has jumped from 10% in 2004 to 22% in 2020. Now these 8.4 million older borrowers have a total of $336.1 billion in student loan debt in the United States.
What can older borrowers do now to manage student loan debt from threatening their retirement security? Here’s what older borrowers need to know about ensuring financial security in the event they bring student loans into retirement.
Set a Strategy for Your Financial Situation
Andrew Pentis, a certified student loans counselor at Student Loan Hero, said that the first thing anyone heading into retirement with student debt needs to do is set a strategy. This strategy only offers two concrete solutions. You must either determine how to aggressively pay down student debt for retirement or how you plan to manage lingering student debt while in retirement.
Do not allow your student debt to fall into delinquency or default. Pentis said loans that are delinquent or default could trigger a seizure of Social Security benefits, tax refunds and other federal benefits that are of utmost importance during retirement years.
The strategy you choose will depend on your financial situation and the types of student loan debt you carry including private and federal loans. In some cases, it makes sense for borrowers to aggressively repay their debt while others require a bit of patience.
“If you have great credit and a healthy income, for example, you might refinance your high-interest private loan to get a much lower APR and begin making extra payments to pay down the balance as soon as possible,” Pentis said.
Consider Switching to an Income-Driven Repayment Plan
There is good news for borrowers who carry older federal student loans. Pentis said these borrowers may make the switch to an income-driven repayment plan.
What does this mean? Switching to an income-driven repayment plan allows borrowers to cap their monthly dues at a percentage of their retirement’s limited income. The debt will still linger, but the debt will be current which Pentis said is the most important aspect.
“If you work in a low-paying field and have federal loans, it could make sense to minimize your monthly payment through an income-driven repayment plan and then pursue forgiveness through a program like Public Service Loan Forgiveness, which awards relief after a decade of eligible payments and employment,” Pentis said.
Should older borrowers hold out for potential student loan forgiveness or loan cancelation? No, as this does not ensure the utmost safety of one’s Social Security benefits. While Pentis said there are nationwide calls for mass student loan forgiveness, it is recommended that borrowers use existing federal, state and employer-based assistance programs that are already available to them.
Start Making Granular Plans
Once you have an understanding of the best strategy to repay student loan debt, Pentis said older borrowers can make granular plans for debt repayment. Consider using methods like debt avalanche or debt snowball to pay off debt. Some borrowers may also look into changing jobs to work in a position that is eligible for federal, state or employer-based loan repayment assistance.
Talk To Your Partner
Older borrowers in committed relationships, especially those that are combining finances together, should put their cards on the table with their partner or spouse as they start making granular repayment plans.
“Being forthright with your partner or spouse ensures that you can come up with a plan together to manage or zero your balances,” Pentis said.
Do not try to hide this debt or financial information from one another. Being transparent about debt within your relationship, at any age, keeps from harming your personal relationship and makes it a bit easier to manage the debt together.
What if an income-driven repayment plan for your federal student loans doesn’t allow you to retire? What if you have a private student loan that has a high interest rate and cannot be realistically paid off? It’s time to ask for help from a qualified financial professional.
Where can older borrowers receive aid? Pentis recommends speaking first with a certified student loan or credit counselor. These individuals should work for an accredited nonprofit credit counseling agency and offer no- or low-cost consultations. From there, they can help set older borrowers up with a solution, like a debt management plan, which can consolidate your balances into an affordable monthly payment in the context of your retirement.
More From GOBankingRates
- 7 Best New Dollar Tree Items That Are Worth Every Penny
- You Can Get These 3 Debts Canceled Forever
- 8 Signs You'll Retire Wealthy
- 4 Reasons You Should Be Getting Your Paycheck Early, According to An Expert