Getting Close to Retirement and Still Paying Off Student Loans? Here’s What You Should Be Considering

As millions of student loan borrowers enter retirement facing fixed and lower incomes, avoiding defaulting can be essential as collection efforts start.

More than 6 million student loan borrowers aged 50 to 61 are nearing the average retirement age of 62. More than a quarter of student loan borrowers over the age of 50 have past-due payments. Older borrowers typically attended college later or returned to get an advanced degree; some also helped their children or grandchildren attend college with a parent PLUS loan.

“To be going into a place where it’s either in a fixed income or lesser income, and having these large debts looming can be very intimidating,” said Ashley Morgan, a bankruptcy and debt attorney in Virginia. “Knowing that income level is coming to an end leaves people either calling out for options or feeling like they can’t retire.”

The Department of Education recently began collecting on defaulted student loans. While borrowers who haven’t paid in over 270 days won’t see their Social Security benefits garnished, they will still be in a default status, which can lead to other financial problems, like hits to their credit scores.

However, experts said there are ways to decrease your monthly student loan payments and avoid defaulting on your loans if you’re heading into retirement.

Borrowers Have Several Options Before They Enter Retirement

Experts said older workers who want to retire in the next few years but want to avoid juggling the payments on a fixed income should consider working until the loan is paid off or forgiveness is given. While extending working years may not be ideal, it may be the best way to ensure they won’t default.

If they have a larger loan and are closer to completing the number of payments required for loan forgiveness, they could wait and get the rest of their debt forgiven, said Jack Wang, college financial aid advisor with Innovative Advisory Group. Most federal income-driven repayment plans forgive student loan borrowers’ balances after they’ve made payments for 20 or 25 years.

“There are just so many features and protections that are inherent to federal student loans that do not exist anywhere else that really changes the game,” Wang said.

Working for longer isn’t an option for all retirees. If borrowers do retire with student loans, it is important to make a budget to ensure that they can afford the monthly payments with their retirement income, Morgan said. In some cases, retirees may need to work part-time or lower their expenses when entering retirement.

“You would hope that someone who’s about to enjoy their retirement doesn’t have to worry about how they’re going to be paying Mohela each month,” Morgan said, referencing one of the largest student loan servicers, Missouri Higher Education Loan Authority. “But the best thing you can do is aim forward-looking. Get those estimates and figure out how you’re going to make your budget work going forward.”