Retiring With Student Loan Debt: Forgiveness & Repayment Options

Americans over 60 are the fastest-growing segment of the population with student loan debt, according to a report by the Consumer Financial Protection Bureau. In ten years, membership in that group quadrupled. Plus, the average amount of higher education debt members carry nearly doubled, ballooning to $23,500 from $12,100. These figures suggest a disturbing trend that older Americans are retiring with student loan debt — many without a plan to keep up with the payment demands.

Thankfully, there are flexible repayment plans and loan forgiveness options — at least for federal student loans — that seniors and retirement-age borrowers can use to their advantage.

Related: What Happens to Parent PLUS Loans When You Retire?

The federal government doesn’t forgive student loans at age 50, 65, or when borrowers retire and start drawing Social Security benefits. So, for example, you’ll still owe Parent PLUS Loans, FFEL Loans, and Direct Loans after you retire. Although neither retirement nor your age affects your loans, the U.S. Department of Education has student loan forgiveness programs that will wipe out the balances for eligible borrowers. Those programs include:

• The Public Service Loan Forgiveness Program – eliminates the balance remaining on Direct Loans, including Parent PLUS Loans, after working full time in public service for 10 years.

• Repayment Plan Based Loan Forgiveness – forgives your loan balance after making 20 to 25 years of monthly payments.

• Total and Permanent Disability Discharge – cancels your debt if a doctor or the Social Security Administration or Veterans Administration determines you have a physical or mental ailment that prevents you from working.

• Death Discharge – wipes out the federal loans you borrowed for your education and your child’s education when you die.

There are also a few additional niche loan repayment programs and loan assistance programs you may qualify for, depending on your profession and where you work. Those programs are typically limited to licensed teachers, nurses, doctors, and lawyers with federal student loans.

Related: Parent PLUS Loan Forgiveness During COVID

Lenders typically don’t offer loan forgiveness options for private student loans. As a result, many retirees struggling with private loans, either as the primary borrower or cosigner, will need to look for relief elsewhere — more on that below.

Can student loans take your retirement? Student loans can’t take your retirement payments from a 401k or pension. However, if you default on federal student loans, the government can garnish 15% of your Social Security benefits. You can stop the garnishment from happening by getting out of default, either with loan rehabilitation or consolidation.

Unlike our siblings in England, Ireland, and Scotland, the US Department of Education doesn’t write off student loans when borrowers turn 65 years of age. Unfortunately, American lawmakers haven’t provided student loan borrowers with age-based forgiveness. Like millennials burdened with student debt, you’re expected to keep paying your education loans until they’re paid in full, forgiven, or you die.

Related: Student Loan Forgiveness for Social Security Recipients

It’s unlikely that the president will forgive student loans specifically for borrowers 50 years of age or older. While campaigning, President Joe Biden said he would forgive up to $10 thousand in student loans for all borrowers, regardless of age. But he has yet to fulfill that promise through executive order or legislation.

Even without that blanket forgiveness, the Biden administration has sped up and broadened student loan cancellation efforts for beleaguered borrowers by fixing and expanding existing programs. So far, the Department has delivered loan forgiveness to military personnel, disabled borrowers, scammed students, and public service workers. Whether more will join the 500 thousand borrowers who’ve had their loans erased this year remains to be seen.

Americans over 50 carry the fastest-growing balance of student loan debt. According to an AARP report, they owe about 20%, or $290 billion, of total outstanding student loan debt, a fivefold increase since 2004.

There are no federal student loan forgiveness programs specifically for senior citizens. Retirees are eligible for the same loan forgiveness programs as other borrowers.

The three primary programs that help elderly borrowers get rid of student loans are:

• Public Service Loan Forgiveness (PSLF)

• Income-Driven Repayment plan forgiveness

• Total and Permanent Disability Discharge

1. Public Service Loan Forgiveness Program

The PSLF Program offers borrowers a generous incentive to work in vital but often low-paying government and nonprofit jobs: work full-time for 10 years, and your federal student loan balance will be erased.

To qualify for the program, in addition to full-time work, borrowers must:

• work for the local, state, tribal, or federal government or qualified nonprofit (e.g., 501(c)(3))

• have Direct Loans (loans made under the Federal Family Education Loan Program and Perkins Loan Program aren’t eligible unless they’re consolidated into a Direct Consolidation Loan

• make 120 on-time payments under the 10-Year Standard Repayment Plan or a payment plan based on your income

Two things to note about this program:

• First, Parent PLUS Loan borrowers qualify for PSLF if they — not their child — work in public service.

• Second, you must still be working in public service when you apply for forgiveness. You’re ineligible if you worked in public service for decades but have since retired.

Learn More: How to Qualify for Public Service Loan Forgiveness

PSLF TEMPORARY CHANGES

In October 2021, the Department introduced a sweeping set of temporary fixes to the PSLF Program to bring an estimated half a million public servants closer to forgiveness. But eligibility hurdles remain for many borrowers seeking help.

• To get credit for ineligible payments: submit a PSLF Employment Certification Form.

• If you still have FFEL or Perkins Loans: apply for a Direct Consolidation Loan and submit a PSLF Employment Certification form for each qualifying employer you’ve worked for since October 1, 2007. Borrowers with Parent PLUS Loans can receive credit under the waiver in limited circumstances.

If you retired from public service without getting your loans forgiven, the waiver could help you get closer to having your debt wiped away.

You have until October 31, 2022, to apply for the waiver. You can apply for free at the Federal Student Aid website, studentaid.gov.

​​​​2. IDR Plan Forgiveness

Income-driven repayment plans allow borrowers to make student loan payments based on their discretionary income. After 20 years — sometimes 25 — the remaining balance is forgiven.

While forgiveness is distant, these plans allow many retirees and seniors living on a fixed income to have an affordable payment. Plus, if your taxable income decreases, your payment amount decreases. Borrowers with low income can even qualify for a $0 payment amount. So there should be no reason for you to default and have to deal with wage garnishment or having your Social Security benefits offset.

There are four different plans to choose from, each with slightly different rules:

• Income-Based Repayment Plan (IBR) – best for married borrowers or borrowers with FFEL/Stafford Loans.

• Income-Contingent Repayment Plan (ICR) – best for borrowers with Parent PLUS Loans.

• Revised Pay As You Earn Plan (REPAYE) – best for borrowers with Direct Loans. (including Grad PLUS Loans) and no Parent PLUS Loans.

• Pay As You Earn Plan (PAYE) – virtually no seniors qualify for this plan.

There are two consequences to these plans:

• You have to apply every year. Every 12 months, you’ll need to complete an annual recertification of your income and family size and submit it to your loan servicer.

• You may owe taxes. The IRS will treat that amount as taxable income when your remaining balance is forgiven after 20 to 25 years of payments. However, if you can prove you’re insolvent — that is, your total liabilities exceed the value of your assets — you may be able to ease the tax burden.

3. Total and Permanent Disability Discharge

Borrowers who can no longer work due to physical or mental impairment can qualify for a total and permanent disability discharge. Many elderly borrowers meet the qualifications for a TPD Discharge, but few apply. To qualify, a medical professional (e.g., your primary care physician or specialist), the SSA, or VA must certify that your impairment prevents you from performing a substantial gainful activity.

You can apply for free at disabilitydischarge.com.

Typically, borrowers must provide proof of their annual earnings for three years after discharge. If your annual earnings exceed state poverty guidelines for a family of two (regardless of actual family size) during this monitoring period, the Department can reinstate your loans.

However, the Department of Education temporarily eliminated this rule during the COVID-19 emergency, with plans to eliminate the monitoring period indefinitely.

Related: Student Loan Forgiveness for Low-Income

A good credit score and enough income to cover your expenses may allow you to get a lower interest rate on your student loans by refinancing. When you refinance, you can get a fixed interest rate, which stays the same throughout the life of the new loan, or a variable interest rate, which changes as the markets change. The drawback to refinancing a federal student loan is that you lose certain benefits, like deferment or forbearance during national emergencies and loan forgiveness opportunities.

Bottom line: I rarely recommend retirees and seniors refinance their federal student loan debt to get a lower payment. The better option in most circumstances is to leverage the student loan repayment plans offered by the government. With a bit of tweaking, they can get a payment amount that works with their personal finances.

Borrowing from your retirement accounts to negotiate a settlement for your student loan debt seems like a good idea. You get rid of some interest, settle for closer to what you originally borrowed, and no longer have student loans hanging over your head.

But there are three problems:

• Your credit report will be dinged because you have to default on your loans before you can settle.

• You’ll save only 10-15% off the current loan balance with a federal student loan settlement.

• You’ll be at risk of wage garnishment and Social Security garnishment.

Plus, there are better ways to deal with your federal student loans than taking from your retirement plan, especially as health care advances keep people alive for longer. Contact your loan servicer and ask about your repayment options.

However, if you’re struggling with private student debt, a settlement could be a good option. You’ll still take the hit to your credit report. But it’s not uncommon to negotiate an offer that cuts your balance in half or more. Depending on the deal you’re able to negotiate, borrowing from your retirement savings for peace of mind can make personal and financial sense.

News reporting about seniors and retirees struggling with student loan debt is scary. While student loans can lead to bad things happening to your personal finances, those bad things only happen if you default on your loans.

So long as you keep your loans out of default and on an affordable repayment plan or deferment, you should have peace from your student loans in your golden years.