Can Student Debt Endanger Your Retirement? Can Student Debt Endanger Your Retirement?

College students and new grads often half-joke that they hope to pay off their student loans before they retire. For a growing number of US seniors, though, retirement and student loan debt overlap. That’s because many seniors are still paying for their own educations, while others are taking out loans for their grandkids. Paying off student loans while living on a fixed income can endanger your retirement. Here’s what you need to know about dealing with student debt as a senior.

Why are so many seniors struggling with student debt?

The number of retired Americans with student loan debt rose fourfold over the last ten years as more seniors took out loans to help their children and grandchildren pay for college. Pitching in seems like the right thing to do at a time when higher ed costs are rising faster than inflation, household incomes, and financial aid resources. The total value of student loan debt held by seniors is now more than $66 billion.

But as the number of indebted seniors and their average debt amount rises, retirement planners say these borrowers could face savings shortfalls and even garnished benefits just when they need to pay for assisted living or a nursing home. The Washington Post reported in January that “nearly 40 percent of federal student loan borrowers over age 65 are in default, the highest rate for any age group.”

What are the risks to seniors with student debt?

Any debt reduces your spending power and can cut into your savings if your income doesn’t cover your basic expenses plus loan payments. Retirement is already a time of financial adjustment and rising care costs for many people, even without the added challenge of new loans to pay off.

Borrowers who fall behind on federal loan repayments may find their Social Security checks garnished as the government tries to recoup its funds. As of late 2016, more than 110,000 adults age 50 and older had as much as 15% of their monthly Social Security payments garnished. For many, the garnishment plus a $15 monthly fee dropped their income below federal poverty guidelines, according to a December Washington Post report.

How can seniors avoid student loan problems?

If you still have outstanding loans from your own education, try to pay them off completely before you retire, especially if you’ll be relying on Social Security income for your monthly expenses.

If you have become fully disabled since you took out your loan, you may be able to have your remaining federal loan balance canceled. Learn more at the federal Disability Discharge site.

Finally, be realistic about the financial help you can give your children and grandchildren. If you can’t easily spare a cash gift, it’s probably better for them to take out their own loans or to seek out less expensive school options. As personal finance expert Suze Orman reminds older borrowers, “There are no loans that you can take out to fund your retirement.”

Learn more about senior debt issues on the blog.

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.


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