Heading into Retirement with Student Loans

Before You Sign or Co-sign for a Loan, Make Sure You Know the Dangers

According to the Consumer Financial Protection Bureau (CFPB), the number of student loan borrowers ages 60 and older climbed at least 20% from 2012 to 2017. Additionally, from 1995 to 2017, the amount of outstanding federal student debt increased more than sevenfold.

Taken together, these two figures suggest a disturbing trend that could mean economic hardship for millions of older Americans in the years ahead if they’re stuck with loan repayment after retirement.

Key Takeaways

  • The number of American student loan borrowers ages 60 and older is on the rise.
  • Most older people with student debt took out or co-signed loans for people other than themselves, typically a child or grandchild.
  • Before co-signing a loan, people should be aware that they will have to make the payments if the other borrower doesn’t.

Why Older Adults Are Saddled with Student Loan Debt

The vast majority of older adults with student loan debt didn’t take out the loans for their own higher education. A CFPB report found that 73% obtained or co-signed loans on behalf of a child or a grandchild, while just 27% said they took out loans for themselves or their spouses.

Unfortunately, co-signers of loans can find themselves in a difficult situation if the loan recipients fail to honor the agreed-upon payment schedules. By co-signing, they have put themselves on the hook for payments, just as if the loan had been theirs alone. This can become even more difficult during their retirement years when they may be living on a fixed income.

Disadvantages of Loan Repayment After Retirement

Since most student loan debt cannot be eradicated by filing for bankruptcy protection (it is possible in some rare cases), pre-retirees (typically ages 55–65) who owe balances often face some or all of the following ramifications:

  • They’re forced to work beyond the traditional retirement age. Social Security benefits and other retirement income may not be adequate to cover their living expenses plus the loan payment.
  • They sacrifice retirement savings. According to a study by the Association of Young Americans (AYA) and AARP, 31% of baby boomers claim that loan debt has either hindered their retirement saving efforts or caused them to prematurely dip into their nest egg to cover the payments.
  • They delay their healthcare. Also according to the AYA/AARP study, student loan debt causes approximately 9% of seniors to put off seeking medical treatment.
  • They experience credit issues. According to Credit Sesame, older adults with at least $40,000 in student debt can struggle to obtain new loans they need to finance home repairs, purchase cars, or cover other big expenses. The AYA/AARP study also found that lingering student loan debt caused 32% to put off buying homes.
  • They’re unable to help their families. More than 25% of baby boomers claim student loan debt prevented them from extending a financial helping hand to loved ones in need.
  • Their Social Security benefits are garnished. The American Seniors Association reports that retirees who struggle to pay back their federal student loans in a timely manner may discover that lenders can garnish up to 15% of their Social Security benefits or part of their tax refunds.

Having too much student loan debt can make it difficult to get a loan for other purposes, such as buying a car.

How to Minimize Student Loan Difficulties

Fortunately, there are some constructive steps you can take both before and after you take out or co-sign for a student loan.

Hold Honest Discussions Before You Borrow

Before co-signing for a loan, talk with your co-borrower to determine how much you’ll need to borrow and agree on a realistic timetable for making payments. Discuss how scholarships, less expensive colleges, or other options might ease their debt burden.

Prepare a Contingency Plan

Before you commit, make sure you can afford to cover the loan payments yourself if your co-borrower is unable to. If other family members offer a safety net, see if they’ll put that promise in writing, just in case they forget.

Monitor the Loan

After you borrow, be sure that the loan servicer furnishes regular statements that show the balance due, payments made, the interest rate, and the payoff date. File a complaint with the CFPB if you do not receive this information on a timely basis or if you’re unduly bombarded with harassing calls or letters because the borrower has failed to make payments.

Know Your Repayment Options

Deferment and forbearance programs can let you temporarily stop making payments if you or the person you co-signed for experiences hard times, such as difficulty feeding your family or paying other household bills. One option, consolidating multiple student loans, may result in one smaller payment compared to multiple larger payments.

There are also other repayment options that might help, including Saving on a Valuable Education (SAVE), Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay as You Earn (PAYE). Some programs forgive an existing balance after 20 years or if you pass away.

If your Social Security payments are in jeopardy of being garnished, you should know that your monthly benefit cannot sink below $750. Furthermore, the garnishment cannot occur until two years after you default on a loan, giving you ample time to contact the loan servicer to modify the repayment plan.

Can My Retired Grandparent Co-sign a Student Loan?

A retired grandparent can certainly co-sign your student loan, but whether this is a good idea or not will vary. If they are on solid financial footing and can afford to pay their bills and other expenses and your student loan payment should you default, then it might be feasible. However, if they will be on a fixed income or do not have enough savings to cover their expenses if they are forced to pay the loan back, then you should both consider other options.

What Are the Repayment Options for Student Loans?

There are several student loan repayment options available to you, including Saving on a Valuable Education (SAVE), Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay as You Earn (PAYE). If you’re struggling to make payments, there are deferment and forbearance programs available. Just know all of your options before you sign up for a repayment plan.

Can I Collect Social Security If I Have Student Loan Debt?

You can still collect Social Security income if you have student loan debt. However, should you default on your federal student loans, up to 15% of your Social Security payments can be garnished. If that would leave you with too little to live on, consider not co-signing for a loan.

The Bottom Line

It’s exciting to go back to school or to help out a child or grandchild pursue a higher education. However, if you or your co-signer cannot afford to make payments, then your finances can take a hit that you can’t afford to take. Instead, crunch the numbers and get everything in writing before you agree to take out a loan for you or your loved one.

Article Sources
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  1. National Education Association. “Student Loan Debt Among Educators: A National Crisis,” Page 15.

  2. Congressional Budget Office. “The Volume and Repayment of Federal Student Loans: 1995 to 2017.”

  3. Consumer Financial Protection Bureau. “Snapshot of Older Consumers and Student Loan Debt,” Pages 8-9.

  4. Consumer Financial Protection Bureau. "Tips for Student Loan Co-Signers."

  5. Consumer Financial Protection Bureau. “Snapshot of Older Consumers and Student Loan Debt,” Pages 12–13.

  6. AARP Press Room. “Rising Student Loan Debt Prevents Saving, Buying a Home.”

  7. Consumer Financial Protection Bureau. “Snapshot of Older Consumers and Student Loan Debt,” Page 21.

  8. Consumer Financial Protection Bureau. “Submit a Complaint About a Financial Product or Service.”

  9. Federal Student Aid. "Get Temporary Relief: Deferment and Forbearance."

  10. Federal Student Aid. "Student Loan Consolidation."

  11. Federal Student Aid. "Income-Driven Repayment Plans."

  12. Internal Revenue Service. "Social Security Benefits Eligible for the Federal Payment Levy Program."

  13. Federal Student Aid. "Collections."

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