The number of older Americans with student loan debt – whether it be theirs or someone else’s – is rapidly growing. Unfortunately, learning how to deal with this debt is now a fact of life for many seniors who are heading into retirement.
According to a study by the Consumer Financial Protection Bureau, the number of older borrowers increased by at least 20 percent from 2012 to 2017. Some of them were borrowing for themselves, but the majority was doing so for others. The study found that 73 percent of student loan borrowers from age 60 and older borrowed for the education of a child or grandchild.
Before you co-sign a student loan for a child or grandchild, it is essential to understand your obligations. The co-signer not only vouches for the loan recipient’s ability to pay back the loan, but you are also personally responsible for repaying the loan if the recipient cannot take care of the debt. Because of this, you need to carefully consider the risk before taking on the responsibility.
In some circumstances, it is possible to obtain a co-signer release from a loan after the loan recipient has made a few on-time payments. If you are a co-signer on a loan that has not defaulted, check with the lender about getting a release. You can also ask the lender for payment information to make sure the borrower is keeping up with the payments as promised.
If the borrower defaults on the loan and you are obligated to pay the loan back, or you are the borrower yourself, how you manage your finances will become even more critical. Having to pay back student loan debt can lead to working longer, fewer retirement savings, delayed health care and credit issues, among other things. If you are struggling to make payments, you can make a request to receive a new repayment plan that has lower monthly payments. With a federal student loan, you also have the option to make payments based on your income. To request an income-driven repayment plan, visit https://studentloans.gov/myDirectLoan/index.action.
It is vital to understand that defaulting on a student loan may affect your Social Security benefits. If you have a private student loan, a debt collector cannot garnish your Social Security benefits to pay back the loan. In the case of federal student loans, the government has the option to take 15 percent of your Social Security check as long as the remaining balance doesn’t drop below $750. Student loan debt has no statute of limitations, so it does not matter how long ago the debt occurred. If you do default on a federal loan, contact the U.S. Department of Education as soon as possible to see if you can arrange a new repayment plan.
If you pass away while owing debt on a federal student loan, the debt will be discharged and your spouse or other heirs will not have to repay the loan. If you have a private student loan, whether your spouse or estate will be liable to pay back the debt will depend on the terms of the individual loan. You should check with your lender to find out the discharge policies. Depending on the loan, the lender may try to collect from the estate or any co-signers. In a community property state (where all assets acquired during a marriage are considered owned by both spouses equally), the spouse may be liable for the debt (some community property states have exceptions for student loan debt).
A valuable resource for tips on how to navigate problems with student loans is the Consumer Financial Protection Bureau. At Willis Law Group LLC, we can also help you get a better understanding of what options you have when it comes to student loan debt and your retirement. To schedule a consultation with us, we encourage you to attend one of our free educational workshops throughout New Jersey or give our main office a call at (877) 296-2575.
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