How to manage retirement with student loans, according to an expert

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The fastest growing category of debt is student loans, and it’s a category that’s no longer limited to young professionals either. The percentage of older borrowers (50+) with student loan debt has increased from 10% in 2004 to 22% in 2020. Today, those 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 prevent student debt from threatening their retirement security? Here’s what older borrowers need to know to ensure their financial security in case they take out student loans in retirement.

Read more: Most student loan borrowers not ready to start payments again on May 1
Related: Women and Student Loan Debt by the Numbers: Why It’s Worrying for Experts

Establish a strategy for your financial situation

Andrew Pentis, Certified Student Loan Counselor at Student loan heroes, said the first thing anyone retiring with student debt should do is strategize. This strategy offers only two concrete solutions. You either need to figure out how to aggressively pay off student debt for retirement, or how you plan to handle lingering student debt in retirement.

Don’t let your student debt become delinquent or default. Pentis said delinquent or defaulted loans could trigger 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 debt you have, including private and federal loans. In some cases, it makes sense for borrowers to aggressively repay their debt while others require a little patience.

“If you have good credit and a healthy income, for example, you can refinance your high-interest private loan to get a much lower APR and start making extra payments to pay off the balance as soon as possible,” Pentis said.

Learn: Why the Avalanche Method is Superior to the Snowball Method for Repaying Debt

Consider switching to an income-driven repayment plan

There is good news for borrowers who have older federal student loans. Pentis said those borrowers could transition to an income-driven repayment plan.

What does it mean? Switching to an income-driven repayment plan allows borrowers to cap their monthly contributions to a percentage of their limited retirement income. The debt will persist, but the debt will be current, which Pentis says is the most important aspect.

“If you work in a low-paying field and have federal loans, it might be a good idea to minimize your monthly payment through an income-driven repayment plan and then seek forgiveness through a program like Cancellation of civil service loanswhich provides relief after a decade of qualifying payments and employment,” Pentis said.

Should older borrowers wait for a possible student loan forgiveness or forgiveness? No, because this does not guarantee the greatest security of your social security benefits. While Pentis said there are nationwide calls for mass student loan forgiveness, borrowers are recommended to use existing federal, state and employer assistance programs already available to them. .

Start making granular plans

Once you understand the best strategy for paying off student loan debt, Pentis said older borrowers can make granular plans for debt repayment. Consider using methods such as debt avalanche or debt snowball to pay off debt. Some borrowers may also consider changing jobs to a position that is eligible for federal, state, or employer loan repayment assistance.

Talk to your partner

Older borrowers in committed relationships, especially those combining finances, should put their cards on the table with their partner or spouse as they begin to develop granular repayment plans.

“Being upfront with your partner or spouse allows you to come up with a plan together to manage or zero out your balances,” Pentis says.

Do not try to hide this debt or financial information from yourself. Being transparent about debt within your relationship, at any age, avoids hurting your personal relationship and makes it a little easier to manage debt together.

Ask for help

What if an income-based repayment plan for your federal student loans won’t allow you to retire? What if you have a private student loan that has a high interest rate and cannot realistically be repaid? It’s time to seek the help of a qualified financial professional.

Where can older borrowers get help? Pentis recommends speaking with a certified student loan or credit counselor first. These people must work for a licensed, non-profit credit counseling agency and offer free or low-cost consultations. From there, they can help older borrowers find a solution, like a debt management plan, that can consolidate your balances into an affordable monthly payment as part of your retirement.

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About the Author

Heather Taylor is Senior Financial Writer for GOBankingRates. She is also the editor and brand mascot enthusiast for PopIcon, Advertising Week’s blog dedicated to brand mascots. She has been featured on HelloGiggles, Business Insider, The Story Exchange, Brit + Co, Thrive Global and other outlets.

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