Student loans aren’t just a young person’s problem. In the two decades leading up to 2024, the number of adults 60 and over with student loan debt increased sixfold. Those older debtors also owe more than ever, with the amount of debt they carry nearly 20 times higher than two decades ago.
While most older borrowers owe for their own education, some retirees are saddled with student loan debt because they borrowed to help their children get a leg up. But that can leave them struggling to make ends meet in retirement with huge loan balances.
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Let’s say, for example, that Raymond took on student debt to help his son and daughter earn their degrees. The problem is, Raymond now finds himself at age 70 with $200,000 in debt and no clear way to dig out of the hole.
So, what can Raymond do in this difficult situation?
Understanding repayment options
Raymond must start by taking a close look at the debt he’s carrying so he can understand his options.
“I think the first step here is to figure out exactly what kind of loans you have,” Steve Sexton, CEO of Sexton Advisory Group, told Moneywise. “Federal Parent PLUS Loans, federal consolidation loans and private student loans all have different rules and repayment options.”
Sexton explained that federal student loans may offer very flexible payment plans. “Depending on how and when the loans were consolidated, some borrowers may qualify for an income-driven repayment option, which will help make that monthly payment much more manageable,” he said.
Raymond would need to have consolidated his PLUS Loans and had the consolidation loan disbursed before July 1, 2026, to be eligible for an income-driven payoff plan. But even if he didn’t do that, he may still be able to consolidate his PLUS Loans to access the tiered standard plan, which gives him a longer repayment timeline (and lower monthly payments).
If he has private student loans, consolidation isn’t an option, but refinancing to reduce his rate could be, if he can qualify for a new loan with a lower rate than his current debt. If he can’t refinance, though, he’s stuck with the payment arrangement he agreed to when he borrowed.
Regardless of whether his student loans are federal or private, Sexton explained that “with a balance that large, the goal may not be to pay it off as quickly as possible. The goal may be to keep the loan in good standing while preserving enough money to live comfortably.”
Prioritizing retirement
While Raymond may want to abandon the idea of early debt payoff, he still must make sure he doesn’t get into financial trouble with how he handles his loans.
“Don’t ignore the loans,” said Michael McAuliffe, president and founder of Family Credit Management. “If they go into default, you can have part of your Social Security taken each month by the government.”
As long as Raymond stays current on payments, though, there may be little reason to do more, especially since Sexton said his first focus must be on his own future. “An important point worth noting,” said Sexton. “Federal Parent PLUS Loans can generally be discharged if the parent borrower dies. That doesn’t mean you ignore the debt, but it is one more reason I would be very cautious about exhausting retirement assets just to get the balance to zero.”
If Raymond can pay an affordable minimum monthly payment while still having money left over for everything else he needs, doing that may be better than aggressively trying to repay everything he owes ASAP.
“Don’t assume the answer is to start liquidating accounts just to make the balance go away,” warned Sexton. “At that age, the bigger priority is protecting your overall retirement. You still need money for housing, healthcare, everyday expenses and potentially another 20-plus years of living costs. Draining an IRA or 401(k) to aggressively pay down student loans can create a tax bill and leave you with less flexibility down the road.”
Get creative in finding extra cash
If Raymond decides to be more aggressive about paying off his debt, he can also explore ways to generate extra money to send to creditors.
“You may need to work a part-time job solely to pay off your debt,” said Melanie Musson, a finance expert with Quote.com. Musson says the extra money, combined with pulling money from your retirement savings can help pay off the loan in a shorter period of time. However, as Sexton points out pulling from an IRA or 401(k) does come with tax implications.
Musson also suggested selling some things, like an RV, extra car or motorcycle if Raymond has any of these assets, as selling items could help pay off the debt faster.
And she also pointed out an obvious solution, although it’s one Raymond may feel uncomfortable with. “There’s also the option of asking your kids to pay the debt since it was for their schooling, but this puts your relationship in a tricky position,” Musson said. “If you took out the loan of your own accord, with no agreement for your kids to pay you back, it usually won’t be well received if you ask them to repay you.”
Whether Raymond decides to ask his kids for help, get aggressive to aim for $0 in debt, or keep monthly payments as low as possible, he must keep in mind that he needs his own money to last for life. And he absolutely doesn’t want to risk that.
As Sexton said, “Let’s not forget the emotional side to this. Parents often feel guilt because debt was taken out for their children. But at 70, you don’t have as many working years ahead of you to rebuild your savings. Your children may have decades of earning potential left. You have to make sure helping them doesn’t come at the expense of your own basic financial security.”
This article originally appeared on Moneywise.com under the title: A 70-year-old owes $200,000 in parent student loans for his kids — experts warn against draining retirement to pay it
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: finance.yahoo.com
