Student loans arent just a young persons problem.
Most of the debt held by 50-plus borrowers is the result of the borrowers education.
But there are some ways to deal with your debt that dont involve working forever.
Avoid Refinancing Federal Student Loans
Refinancing your student loans with a private lender may look tempting.
But this isnt a wise move if you have federal loans, especially when youreplanning to retire.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Ask one of these companies to help…
Your income will probably drop when you retire.
(More on these shortly.)
Plus, federal loans offer far more relief options than private loans.
Forfeiting all that flexibility probably isnt worth it, even if you’re free to save on interest.
However,if you have private student loans, go ahead and refinance if youll reduce your payments.
You could substantially reduce your interest rate if youve improved your credit since you took out the loans.
These plans will limit your payment to a percentage of your discretionary income.
They dont have to be consecutive.
Whatever balance is left, including interest, is forgiven at the end of either 20 or 25 years.
Did you know?
In the past, any balance that was forgiven was considered taxable income in the year of forgiveness.
Obviously, that wont help someone whos just starting a 20- or 25-year repayment plan.
Mayotte suggests that borrowers hope for the best, while preparing for the potential tax bill.
Youll need to consolidate your loans first.
Income-contingent plans arent as generous as the other income-driven plans.
Your payment is based on 20% of your discretionary income.
For the other income-driven plans, the cap is 10% to 15%.
Private loans have very few, if any, lower payment options or opportunities for relief, Mayotte said.
Consider whether you could live on abare-bones budgetwhile working an extra year or two.
Thats because your payments are stretched over 20 or 25 years versus the standard 10-year window.
However, even if you dont automatically receive forgiveness, you could still qualify if you have a disability.
If you arent notified that your loan has been discharged, you canapply manuallyand submit a physician certification.
Automatic forgiveness programs also include some people working in the public sector and military personnel and veterans.
But that doesnt mean you cant ask them for help, especially if youre struggling.
What Happens if You Dont Pay?
You want to avoid defaulting on your student loans if at all possible.
Student loans are rarely dischargeable in bankruptcy, so its highly unlikely that your debt will go away.
However, its important to understand what can and cant happen in case you cant afford your payments.
The potential consequences include:
However, you wont be thrown in jail over delinquent student loan debt.
Dont believe any debt collector who threatens you with arrest.
If you cant afford payments, its important to talk to your servicer as soon as possible.
Youll often have some options for federal student loans.
Retiring with student loans is doable.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
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