How Retirees Can Pay Off Student Loan Debt
Retiring without debt is the dream, but this isn’t always feasible. According to the Federal Reserve, Americans age 60 and up carry around $126.6 billion in student loan debt alone — that’s way higher than 20 years ago.
Student loans cause serious financial hardship at any point, especially when living on a fixed income. If you default on your federal loans, Social Security can legally take a portion of your disability or retirement benefits to cover that debt — up to 15% of your benefits amount in some cases. And if you have private loans, your lender could sue you to recover some of what you owe.
Learn More: How To Retire on $2,000 a Month: A Frugal Living Guide
For You: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing
That’s why being proactive about paying back your debt is important, while still doing your utmost to retain a good quality of life. While some options might not suit you, here are a few ways to pay off your student loan debt in retirement.
Budget In Those Payments
Start by looking over your budget and seeing where you can cut out expenses and make more room for your student loans. This can help you pay them off sooner and save on interest.
“Building loan payments into your budget can help you find more room to make higher payments. If you’re careful with your budget and make small cuts here and there, you can usually find areas to free up a few dollars,” said Scott Lieberman, founder of Touchdown Money. “Making higher payments means having to pay less in interest in the long run, which can make a big difference.”
Once you have a budget, look for ways to lower your day-to-day expenses. This could mean buying generic goods instead of name-brand items or negotiating with your insurance and utility companies for lower premiums or rates. Every little bit helps.
Prioritize Making Higher Payments
“Having debt when living on a fixed budget can feel like a burden, but if you have a clear plan to pay it off, you can minimize your stress. All you have to do is prioritize your debt payments in your budget like you would a mortgage payment or groceries,” said Erika Kullberg, founder of Erika.com and a personal finance expert.
Trending Now: Cutting Expenses in Retirement: 9 Things To Downsize (That Aren’t Your Home)
“If possible, budget to make larger payments than are required each month; that way, you can pay your debt off faster and free up more room in your budget,” said Kullberg. “Make all minimum required payments every month and put any extra money towards the source of debt with the highest interest rate so you can save on interest charges.”
Refinance Private Loans
When it comes to student loans, your repayment options depend heavily on whether you have private or federal loans.
“If the borrower has private loans, then looking at refinancing for a lower rate and a longer term to reduce the payment would be an option,” said Jack Wang, wealth advisor and college financial aid advisor at Innovative Advisory Group.
After refinancing, make larger monthly payments to get rid of that debt early. And if you have multiple loans, take them one at a time.
“If the retiree can pay more than the monthly payments, then focusing on the loan [they can] pay off the fastest, or has the smallest balance, would be ideal,” said Wang. “When that loan is paid off, it would free up cash flow since that loan payment would no longer be required.”
This extra cash can then be used for the next loan or until you no longer owe anything.
If you need a reprieve and have federal student loans, look into income-driven repayment plans (IDRs). These can lower your monthly payment amount and free up some cash while you figure out a long-term solution.
Consolidate Your Debts
“If you are retiring, but still have student loan payments you need to make, look into consolidating your debt,” said Kullberg. “If you have multiple sources of debt and can qualify for a better interest rate than you’re currently paying across the board, consolidating your debt can help simplify your life and save you money.”
Be aware that consolidating federal loans could make them ineligible for student loan forgiveness or other federal protections.
Set Up a “Theme” to Pay Off the Debt
“I recommend setting up a theme to save money,” said Paul Walker, financial expert and the author of “A Money Book Anyone Can Read.”
A theme is essentially a way to save money by cutting out something else for a while.
“A student loan payoff theme is just that: save money for three, six, or 12 months with every extra penny going toward paying down the debt,” said Walker. “Sure, you may splurge occasionally but overall you will be working toward your goal.”
Once you reach your first goal, set a new one. Continue doing this until you’ve paid off your debts — or at least until you’ve made them more manageable.
Maximize Your Retirement Income
“Explore ways to maximize your retirement income,” said David Reyes, founder and chief investment officer at Reyes Financial Architecture. “This could include delaying claiming Social Security benefits to receive a higher monthly payout or considering a part-time job.”
Be aware that any decisions made around your income affect your eligibility for income-driven repayment plans or other assistance programs you might be on.
Look into Student Loan Forgiveness
If you have federal student loans, you might be eligible for student loan forgiveness under certain circumstances, said Reyes.
Say, for example, you’ve been on an income-driven repayment plan for the past 20 or 25 years. Depending on your circumstances, your remaining balance could be forgiven.
If you’ve worked in public service and made qualifying payments under an IDR plan, your loans may be forgiven. Look into loan forgiveness programs based on your state, profession and other qualifying circumstances.
Get Help When You Need It
If your debt is overwhelming, don’t be afraid to ask for help. Contact your loan servicer and ask about any options or try to negotiate repayment. Be honest and communicate your situation as clearly as possible.
Even if they can’t — or won’t — forgive your debt, they might be able to get you on a temporary repayment plan while you get your finances in order.
More From GOBankingRates
I Was Retired, but Wasted Big Money On These 3 Things and Had To Go Back To Work
7 Things to Do With Your Savings in 2024 to Grow Your Wealth
4 Reasons You Should Be Getting Your Paycheck Early, According to An Expert
This article originally appeared on GOBankingRates.com: How Retirees Can Pay Off Student Loan Debt
