Gone are the days when most graduates repaid their student loans within ten years of finishing college. It may seem crazy, but more and more workers are retiring while still making student loan payments. In fact, the number of people over 60 with student loan debt has quadrupled since 2005, according to the Consumer Protection Bureau.
The debt burden can throw off the most meticulous financial planning and create all new problems. As you plan your own retirement–whether soon or still several years off–consider how student loan debt figures into your plan.
Why More Older People Carry Student Loan Debt
College costs more, and many recent grads have to complete internships or other unpaid and low-paying work in order to get a career going. During that time, they may defer loan payments as interest continues to accrue. In addition, some people earn college degrees later in life, in order to retrain and keep up with a changing economy. They might borrow money on top of debt they still owe from an earlier degree. Compounding matters, they can put those original payments on hold while pursuing the new degree. What does that mean? More interest, of course.
Still other older adults borrow money or cosign loans for children and grandchildren. When those younger generations struggle to find full-time, good-paying jobs, they can’t afford the payments. That leaves the cosigner to either pay up or risk damage to their credit.
How to Plan for Retirement with Student Loan Debt
When it comes to cosigning or borrowing money for other people, every family must make their own personal choices. However, discuss it with your financial adviser and know that you can say “no.” Experts advise against taking out student loans within five to ten years of your own retirement. Look for other ways to help your younger relatives financially, such as paying for their groceries or gas. If someone asks you to cosign a loan, approach the responsibility as if you, yourself, will have to pay it back. If that is not realistic for you, don’t take the risk.
For your own loans, make those payments on time. Defaulting can lead to compounding fees and interest. Worse, the lender could garnish your wages, tax returns, or even your social security payments. If you need to, negotiate a lower monthly payment or an income-based repayment plan. If interest rates are lower now than when you borrowed, look into refinancing.
In certain circumstances, you may be eligible for loan forgiveness, so explore all options. Keep in mind that you may have to pay income tax on the forgiven balance.
Making Student Loan Payments
As for juggling student loans with other debt, make a list of your priorities. You must pay your mortgage, if you have one, as well as medical bills and car loans. With credit cards, you can prioritize according to interest rate, paying the highest ones first. Remember that, should bankruptcy become necessary, some of these debts will be discharged. Student loans are difficult, though not impossible, to discharge through bankruptcy.
Assuming you can make at least a small payment each month, stick with it. It can seem frustrating but, as with any other debt, staying on top of it is the best scenario.
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