If you’re entering your golden years with the burden of a student loan, you may have resigned yourself to never being able to pay that loan back in your lifetime.
The average retiree on welfare receives $1,918 a month. The median savings of Americans ages 65 to 74 is just $200,000, according to the Federal Reserve.
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Using the 4% rule, that works out to about $667 a month in savings. With Social Security, that leaves the average retiree with $2,585 to cover everything from housing to groceries and more. That’s hard enough without adding student loan repayments to the mix.
Yet more and more older Americans are taking their student debt with them into retirement.
In fact, according to the Education Data Initiative, 8.3% of student loans are now owed by borrowers age 60 and older. This group has an average outstanding loan balance of $37,360.
But what happens to these debts when you die?
What happens to your student debt after you die?
Whether or not your student loans will be forgiven after your death depends on the type of loan you took out.
The good news is that federal borrowers are generally safe in this regard because these loans are forgiven upon the borrower’s death. Parent PLUS loans are also forgiven if the parent holding the loan passes away or if the student associated with these loans dies.
However, things can get a little more complicated with private student loans. Some private lenders will forgive student loans after the borrower dies, provided the required proof of death has been provided, but this is not always guaranteed.
In some cases, private lenders may take credit from the cosigner of a loan. If there is no cosigner, the deceased person’s estate may be held responsible for repaying the private student loan.
For example, let’s say you owed $35,000 in loans to a private lender and had assets valued at $100,000, your heirs could potentially lose about a third of their inheritance.
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What to do if you retire with student loan debt?
If you have federal loans, one option you should consider is enrolling in a income-dependent repayment plan. The government offers some plans that can adjust your payments according to your income and family size, making repayments more affordable.
Depending on the plan option you choose, your loan payments would not exceed 10% or 20% of your disposable income. And once you’ve paid off student loans for 20 or 25 years, the remaining balance is usually forgiven.
Another option you should consider is to take out a life insurance policy. If you’re over 55 and don’t have one yet, you could face some obstacles. You may have better luck securing a more senior-friendly policy with a shorter term.
In any case, life insurance could help your beneficiaries avoid paying off your student loans because they can use the policy benefit to offset or cover the costs.
Another possible way is Refinancing or consolidation Your loans. Depending on the loan and circumstances, you may be able to extend your repayment period and get a lower interest rate. Essentially, you would be consolidating one or more existing loans into a new one.
You can also Check if you are eligible for debt relief. If you have government loans, you may meet the necessary criteria to potentially be relieved of your obligation to repay some or all of your student loan.
If you have recently experienced significant financial difficulties or a medical emergency, you may also consider, as a last resort, Deferment or postponement might work for you.
This will temporarily suspend your payments and make you better off in the short term, but keep in mind that interest will accrue during this time, ultimately increasing your balance and giving you a higher bill over the life of the loan – which may become the responsibility of your loved ones after you pass away.
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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.
