Heading Into Retirement With Student Loans

Before you sign or cosign for a loan, make sure you know the dangers

According to the Consumer Financial Protection Bureau (CFPB), the number of student loan borrowers age 60 and older climbed at least 20% between 2012 and 2017. Furthermore, more than 75% of states saw at least a 50% uptick in outstanding student loan debt. 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 over age 60 is on the rise.
  • Most older people with student debt took out or cosigned loans for people other than themselves, typically a child or grandchild.
  • Before cosigning a loan, people should be aware that they will have to make the payments if the other borrower doesn't.

Why It Happens

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

Cosigners of loans can find themselves in a difficult situation if the loan recipients fail to honor the agreed-upon payment schedules. By cosigning, they have put themselves on the hook for payments, just as if the loan had been theirs alone.

Student Loans and Social Security

While up to 15% of your Social Security payments can be garnished to repay a student loan debt, 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.

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 who owe balances often face some or all of the following ramifications:

  • They’re forced to work beyond the traditional retirement age. Their 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 the 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.
  • 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 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 have garnished a portion 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 cosign for a student loan.

Hold Honest Discussions Before You Borrow

Before cosigning 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 the 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 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.

Know Your Repayment Options

Deferment and forbearance programs can let you temporarily stop making payments if you experience hard times, such as difficulty feeding your family or paying other household bills. Consolidating multiple student loans may result in smaller payments.

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

Article Sources
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  1. Consumer Financial Protection Bureau. "A Nationwide Look at How Student Debt Impacts Older Adults."

  2. Consumer Financial Protection Bureau. "Snapshot of Older Consumers and Student Loan Debt," Page 9.

  3. Consumer Financial Protection Bureau. "Snapshot of Older Consumers and Student Loan Debt," Page 10.

  4. U.S. Government Accountability Office. "Social Security Offsets: Improvements to Program Design Could Better Assist Older Student Loan Borrowers With Obtaining Permitted Relief," Pages 6–7.

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

  6. AARP. "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. "Having a Problem With a Financial Product or Service?"

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