Over the past ten years, there’s been a huge increase – 400% – in the number of Americans over 60 drowning in student loan debt. Even worse: the amount they owe has increased substantially.
This crippling debt chips away at their financial security during retirement, making it much more difficult – if not impossible – to make monthly ends meet.
Take a look at these alarming facts from the Consumer Financial Protection Bureau:
- $66.7 billion – the amount of student loan debt owed by Americans over age 60
- 73% – the percentage of that debt taken out to fund education for children or grandchildren
- 8 million – the number of older Americans with student loan debt in 2015, compared to just 700,000 in 2005
- $23,500 – average outstanding student loan debt for Americans over age 60
- 40%– the percentage in default on those student loans
- 40,000 – the number of people receiving reduced Social Security payments to repay federal student loans
That’s right: The federal government has been garnishing hundreds of dollars every month from retirees counting on their Social Security checks. That’s because the current law says that if you’re at least 50 years old and have defaulted on a student loan, you have to pay it back out of your Social Security benefits … and possibly also federal tax refunds. Most people see a 15% reduction in their Social Security checks plus a $15 “offset fee” every month, which can drastically increase financial stress.
In fact, because of this overwhelming student loan burden, many retirees report not being able to afford basic medical care like doctor and dentist visits or prescriptions.
This could easily happen to you, if you don’t take steps right now to prevent it.
FIX #1: Many of these devoted parents and grandparents took on (or co-signed for) student loan debt at the expense of their own retirement savings. Before you undertake this potentially retirement-robbing debt, consider other options for funding the education, including less expensive schools, scholarships, and grants. If you must borrow money to help your student go to college, try to structure future loan payments in a way still allows for at least some retirement savings.
FIX #2: Don’t raid existing retirement savings to pay for your children’s college education. Not only will this drastically reduce your nest egg and it’s growth potential, the money you withdraw could be subject to taxes and IRS penalties – and that could cost you even more.
FIX #3: Look into federal IBR (Income-Based Repayment) programs, available to people with federal student loan debt. If student loan payments are high in proportion to your income, this program can help lower them. In some circumstances, you may even qualify for loan forgiveness. Click here to learn more and apply.
FIX #4: Try to refinance the student loan debt at a lower rate. Right now, for example, the interest rate on federal Direct PLUS loans (the kind parents can take out) is 6.21% … and the average rate on a $30,000 home equity line of credit (HELOC) is 4.56%. Not only does the lower rate translate to lower payments, it can also save you thousands of dollars over the life of the loan. Use caution with this approach, though: Adding more debt to your home can translate to significant problems down the road if you can’t make the payments.