What to Do if You’re Retiring With Student Loan Debt

Quick Answer

If you’re still weighed down by student loan debt in retirement, here’s how to tackle it and ensure it doesn’t ruin your well-deserved golden years.

Elderly man using digital tablet while sitting on couch against window at home

Student loan debt is often thought of as a problem only for the young. And while it's true that the age group with the most student loan borrowers is the under-30 set, a growing number of adults nearing retirement are also burdened by student loan debt.

A 2022 report from the Federal Reserve Bank of New York found that student loan debt among older adults skyrocketed over the past two decades. Nearly 20 years ago, just over half a million Americans over age 60 had student loan debt. By 2021, that number exceeded 3.5 million people.

With pandemic-related student loan relief efforts coming to an end, it's important to plan how to tackle student loan debt so it doesn't ruin your golden years. Here are some ways to manage—or get rid of—student loans in retirement.

Challenges of Retiring With Student Loan Debt

There isn't consensus on why there are now so many older student loan borrowers. Experts believe some of these loans linger from the borrowers' own education, while others are stuck with debt from helping their children or grandchildren get through school.

Here are some of the pitfalls that can come with retiring with student loan debt:

  • Difficulty budgeting for retirement: When a portion of your monthly income goes toward student loan payments, there's less room in your budget for other goals. If you've been paying off student loans for decades, you may have gotten behind on retirement savings and perhaps also emergency fund savings. You might face retiring without adequate savings to live on, or be forced to work longer than planned.
  • Fewer resources for enjoying retirement: Beyond struggling to hit retirement savings goals, owing student loan debt every month means you have less money available to actually enjoy retirement. You probably dreamed of post-work life as a time to travel, try new hobbies and live large, but that's harder to do when loan payments eat up a chunk of your budget.
  • Risk of default and lost benefits: In retirement, you may be living on a fixed income. If making your student loan payments becomes impossible, your account may go into default. This can result in being chased by a debt collection agency, facing major damage to your credit and other financial fallout. Even worse, defaulting on federal loans can result in the government withholding money from your Social Security benefits and your federal or state tax refunds.

What to Do With Student Loan Debt in Retirement

If you're retiring with a student loan balance and not sure how to proceed, try these tips for managing student debt in retirement.

Check for Forgiveness Eligibility

If you have federal student loans, check to see if you qualify for any loan forgiveness programs. The government offers these to individuals who work with specific populations or in certain fields, such as those in public service or working with underserved communities. Those who meet criteria, which also typically includes 10 years of work and loan payments, may have the remainder of loans forgiven. There's also a forgiveness option for those who have become fully and permanently disabled. Note that these don't apply to private loans.

Enroll in an Income-Driven Repayment Plan

If you have federal loans and the payments feel too high to manage, consider switching to an income-driven repayment plan. The government currently offers four different plans, which tailor your payments to your income and family size to make them more affordable. Depending on which plan you choose, your loan payments won't be higher than 10% or 20% of your discretionary income, and the remaining balance is typically forgiven after 20 to 25 years. You have to recertify your income and family size annually, so your payments may go down—or up. Like forgiveness programs, these are only for federal loans, not private.

Make Payments on Time

As you strategize how to tackle debt, continue to make every student loan payment on time. Your payment history is the most important factor in your credit score, so multiple late payments, or worse, missed payments, can wreak havoc on your credit. If you fall behind on your student loan debt, you risk it going into default, which comes with an array of negative financial consequences, including losing the ability to opt into programs like income-driven repayment plans.

Adjust Your Budget

To prioritize student loan payoff as you approach retirement, it may help to adjust your budget. You'll need to create a retirement budget if you don't already have one to account for changes in income and expenses after you leave your job. Review your checking and credit card statements for opportunities to trim expenses so you can attack your debt balances more aggressively.

Consider Consolidating or Refinancing

While options vary by loan type, some student loans can be consolidated or refinanced to make payments more manageable. This entails combining one or more existing loans into a new one. Depending on the loan and circumstances, you may be able to extend your repayment term, nab a lower interest or take advantage of other changes that make payments easier on your budget. Just be aware that if you refinance federal loans into a private loan, you'll lose the federal benefits associated with it.

Work With Your Adult Child

According to AARP, around a quarter of student loan borrowers age 50 or older are making private student loan payments because the student they cosigned for—typically their child—failed to pay. This can be an awkward conversation to broach, but if you're stuck with student loans belonging to your adult child, consider having a heart-to-heart. If you think they may be able to pitch in or take over loan payments, explain how it's impacting your retirement plans and see if they can assist you with repaying their loan.

Look Into Deferment or Forbearance

If you're really struggling to make student loan payments in retirement, some last-resort options include student loan deferment or forbearance, which pause your payments temporarily. Servicers have strict rules on when they'll allow it, and it's at their discretion, but it can be worth inquiring about if you're experiencing financial or medical hardship. Just keep in mind that it's not a long-term solution: You'll need to resume payments down the road.

Take Advantage of Catch-Up Rules

Due to their tax advantages, retirement accounts like IRAs and 401(k)s have annual contribution limits. Once you hit 50, these limits increase in order to help adults closer to retirement make progress faster. If you're not retiring for a few years, you're behind on saving, you're in good standing on your loans and you have room in your budget, it could be helpful to put more toward retirement. These so-called "catch-up" contribution limits change annually, so refer to the IRS for the current numbers.

Can Social Security Be Garnished for Student Loans?

Defaulting on private loans will not result in the garnishment of Social Security benefits.

The rules are different with federal loans, however. Since it's a debt owed to the government, if you default on a federal student loan, a portion of your Social Security benefits can be automatically garnished to repay the loan.

In a program called Treasury Offset, the government is allowed to withhold up to 100% of income tax refunds and up to 15% of Social Security payments, among other federal benefits. This includes Social Security disability payments, but Supplemental Security Income won't be impacted.

You'll be notified 65 days before a Treasury Offset begins on your defaulted student loans, and you'll have opportunities to remedy the situation before you start losing benefits.

The Bottom Line

It's nobody's dream to enter retirement saddled with student loan debt, but unfortunately it's the reality for many. By approaching the situation clear-eyed and using all of these tools and tactics, it may become easier to knock out debt and prepare for living on a fixed income.

As a side benefit, making on-time payments, decreasing debt balances and avoiding default can also help improve your credit score. You can periodically check your credit score for free with Experian to see how your hard work translates to your credit report.