What to Do With Student Loan Debt in Retirement | Student Loans and Advice

Seniors are increasingly carrying the burden of student loan debt in America, as many enter their golden years saddled with an extra monthly loan payment eating into their retirement savings.

The outstanding student loan balance held by Americans age 60 or older increased twentyfold over the past 15 years, from $6.4 billion in 2004 to $126.6 billion in 2021, according to consumer credit data from the Federal Reserve Bank of New York. The share of student loan debt held by this age group also quadrupled during this time, from 1.9% to 8%.

Carrying student loans into retirement can make it difficult to keep up with living expenses such as health care, transportation and assisted living – not to mention the leisure spending and travel you’ve been working for decades to afford. But managing (and even eliminating) student loan debt in retirement is possible.

Stay Out of Student Loan Default by Making On-Time Payments

Student loan default comes with serious consequences, but the impact can be even more tangible for seniors who rely on Social Security to supplement their retirement income.

But default doesn’t happen overnight. When you first miss a payment on your federal student loans, your account becomes delinquent. After 90 days of nonpayment, the loan servicer may flag your account to the credit bureaus, causing your credit score to drop. And after nine months of delinquency, your loan goes into default, at which point the loan servicer may take you to court over the debt. For private student loans, the details for delinquency and default vary by lender.

If the loan servicer successfully sues you over the defaulted debt, the government can withhold up to 15% of your Social Security benefits to repay the defaulted student loans. Also called a treasury offset, this can reduce your Social Security payment to as low as $750 per month, or $9,000 per year. Additionally, the government can withhold 100% of your tax refund to repay your defaulted student loan.

Note: As a part of temporary COVID-19 relief, your Social Security payments and tax refunds will not be withheld over federal student loan debt in default. This initiative, called Fresh Start, is in effect through one year after the federal student loan payment pause ends, slated for October 2024. It doesn’t apply to defaulted private student loans.

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Enroll in an Income-Driven Repayment Plan

Income-driven repayment, or IDR, is a program that allows federal student loan borrowers to limit their monthly payments to a set percentage of their discretionary income – either 10%, 15% or 20%, depending on the specific IDR plan. Here’s the best part: After a repayment period of 20 or 25 years, the remaining balance is forgiven.

The exact IDR plan you choose will depend on the type of federal loans you have. If you have direct loans or Graduate PLUS loans, for example, you can enroll in any of the four IDR plans. But if you have Parent PLUS loans, you must consolidate into a direct consolidation loan and can only enroll in an income-contingent repayment plan.

You can compare the different types of IDR plans in the table below, and your student loan servicer can help you decide which plan is right for you.

	Eligible Loans	Payment Cap*	Repayment Period Before Forgiveness
SAVE Plan	Direct loans, Graduate PLUS loans and direct consolidation loans that were not made to parent borrowers. FFEL loans and Perkins loans are eligible if consolidated.	10% of a borrower’s discretionary income. Plus, the federal government covers any accrued monthly interest that’s left over if you make a full monthly payment.	20 years if the loan was used for undergraduate study, or 25 years if the loan was used for graduate or professional study.
PAYE Plan (for new borrowers only)	Direct loans, Graduate PLUS loans and direct consolidation loans that were not made to parent borrowers. FFEL loans and Perkins loans are eligible if consolidated.	10% of a borrower’s discretionary income, but never more than what would be charged on a 10-year standard repayment plan.	20 years.
Income-Based Repayment	FFEL loans, FFEL PLUS loans, direct loans and Graduate PLUS loans, as well as FFEL and direct consolidation loans that were not made to parent borrowers. Perkins loans are eligible if consolidated.	For new borrowers, 10% of discretionary income. For borrowers with outstanding federal student loan debt, 15% of discretionary income. Never more than what would be charged on a 10-year standard repayment plan.	20 years for new borrowers on or after July 1, 2014, or 25 years for those who are not new borrowers as of that date.
Income-Contingent Repayment	Direct loans, Graduate PLUS loans and direct consolidation loans, including consolidated Parent PLUS loans. FFEL loans and Perkins loans are eligible if consolidated.	20% of a borrower’s discretionary income or what a borrower would pay on a fixed 12-year repayment plan, whichever is less.	25 years.
*Depending on income and family size.

See If You Qualify for Student Loan Forgiveness

Enrolling in an IDR plan isn’t the only way to get your student loan debt discharged. The U.S. Department of Education offers several student loan forgiveness programs for federal borrowers. Since President Joe Biden took office, his administration has granted more than $85 billion in targeted relief to nearly 3.6 million borrowers under such programs. See if you may be eligible for student loan cancellation.

Public Service Loan Forgiveness: Public servants such as government workers and nonprofit employees may be eligible to have some of their federal student loan debt forgiven under the Public Service Loan Forgiveness program, or PSLF. This program discharges the remaining balance of your direct loans after you’ve made 10 years’ worth of qualifying payments while working full-time for an eligible employer. And if you’re a public service worker with Parent PLUS loans, you may qualify by consolidating into a direct consolidation loan.
Total and permanent disability discharge: Federal student loan borrowers with a total and permanent disability may qualify to have some or all of their debt forgiven through a TPD discharge. The Education Department automatically identifies candidates for this program through the Social Security Administration and the Department of Veterans Affairs. But if you think you may qualify for a TPD discharge and you haven’t had your student loans forgiven, you may be able to prove you’re eligible with a certification from a physician that you’re totally and permanently disabled.
Borrower defense to repayment: If you attended a school that knowingly misled you or engaged in another form of misconduct, you may be able to have some or all of your federal student loan debt forgiven through the borrower defense program. You’ll need to provide documentation to demonstrate your school’s misconduct when filing a claim for borrower defense. And if you have Parent PLUS loans on behalf of a child whose borrower defense claim was approved, you will also benefit from the loan discharge. Additionally, the closed school discharge program is available to students (and their parent borrowers) who attended a university that closed down while they were enrolled or shortly thereafter.

In rare cases, you may be eligible to have your federal student loan debt discharged by declaring bankruptcy. You must be able to prove that paying the loans would cause “undue hardship,” though, which can be difficult to establish. But there’s good news: the Justice Department released new guidance in November 2022 for handling student loans in bankruptcy that could make discharge more accessible to borrowers. Additionally, you may be able to have your private student loans discharged in bankruptcy – consult with a qualified attorney to see if you’re a good candidate.

Keep in mind that private student loans aren’t eligible for federal debt forgiveness programs such as PSLF or a TPD discharge.

Transfer Student Loans You Co-Signed or Borrowed

Seniors may still be repaying their own student loans, especially those who obtained a graduate or doctoral degree later in life to advance their career. But if you have student loan debt in retirement, there’s a good chance it’s not for your education, but for the college costs of a relative. And if that person is now capable of handling the student loan debt on his or her own, it may be possible to transfer the debt into the relative’s name. This effectively allows you to eliminate your responsibility for repaying the debt and remove the account from your credit profile.

The exact method for transferring student debt depends on the type of loans you have and whether you’re a co-signer or the sole borrower. If you’re unsure of the type of the student loans you’ve borrowed or co-signed, get a free copy of your credit report from all three credit bureaus – Equifax, Experian and TransUnion – on AnnualCreditReport.com. This will give you details on the loans, such as the outstanding balance, interest rate, monthly payments and information on the loan servicer.

Federal Parent PLUS Loans

There’s no federal program that allows you to transfer Parent PLUS loans to the child who used the loan. The only way to transfer a PLUS loan is for the child to refinance into a private student loan that’s in his or her own name, but not all lenders offer this option.

To qualify for student loans without a co-signer, the child will need steady income and good credit. Additionally, student loan refinancing will make borrowers ineligible for federal protections, such as income-driven repayment and student loan forgiveness programs, so think carefully before going this route.

Private Student Loans

Many private student loan lenders offer a co-signer release after the primary loan holder has made a certain number of monthly payments. Reach out to the lender to find out if or when the loan is eligible for a co-signer release.

Alternatively, the primary borrower may be able to refinance private student loans to remove you as a co-signer. This can be a good strategy if the borrower’s credit score or income has improved since taking out the loan, since the borrower may qualify for a new student loan that has competitive terms without a co-signer.

Consider Refinancing Private Student Loan Debt

Private student loan borrowers who are carrying their college debt into retirement may not qualify for federal aid such as debt forgiveness programs, but alternative options do exist. One strategy is student loan refinancing, through which you take out a new private loan to repay the balance of one or more student loans on better terms. By refinancing your private student loans to a lower interest rate, you can potentially reduce your monthly payments, get out of debt faster and save thousands over the life of the loan.

If you think you may benefit from private student loan refinancing, shop around with multiple lenders. Most private lenders let you get prequalified to see your estimated interest rate with a soft credit check, which won’t impact your credit score. That way, you can compare rates, terms and monthly payments – even if you end up deciding that refinancing isn’t the right strategy for you.

Although you can technically refinance federal student loans into a private loan, tread carefully. Refinancing federal debt means you’ll lose access to those federal protections, including IDR plans, certain types of deferment and forbearance, and loan cancellation. But if you can lower your interest rate substantially enough to make the savings worthwhile, then refinancing may still be an option.