It’s easy to think of student loans as a young person’s problem. But the reality is that a good number of older Americans, including near-retirees, are juggling student loans, either because they’re still paying off their own education or they took out loans to help finance a child or grandchild’s education.
The Urban Institute reports that as of August 2022, about 6% of Americans ages 50 and over had student debt. That amounts to roughly 7.2 million in this age group.
Meanwhile, as of 2022, the Federal Reserve reported an average student loan balance among Americans aged 55 to 64 at nearly $62,000. For those between the ages of 65 and 74, the average balance was about $58,000.
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Not only can student loans be burdensome, but they can also hinder achieving financial goals, such as retirement savings. And while it’s clear that plenty of people carry student debt with them into retirement, that’s not ideal.
Many retirees are limited to a fixed income from Social Security and modest withdrawals from IRA or 401(k) accounts. Having to worry about student loan payments at that stage of life can make money management more stressful. That’s why it’s important to be strategic with your student loans if you’re over 50 and still carrying a balance.
One piece of good news is that the Trump administration has paused plans to garnish the Social Security checks of borrowers who are in default on their student loans, according to AP News. That potentially alleviates one source of stress for older adults on a fixed income. But it doesn't address the overall problem of needing to juggle those loans and other bills. That’s why it’s important to be strategic with your student loans if you’re over 50 and still carrying a balance.
Don't stop saving for retirement
If you’re still on the hook for student loans and you’re creeping closer to the end of your career, you may be inclined to funnel all of your spare money into those loans to knock them out ahead of retirement. It’s an understandable line of thinking, but it may not be the best way to go if it means neglecting your nest egg.
Domenick D’Andrea, Co-Founder/Financial Advisor at DanDarah Wealth Management, says, “People over 50 don’t have as many opportunities in the workforce with guaranteed pensions, so they must do planning on their own through a variety of retirement savings accounts like 401(k)s or IRAs. With a large percentage of this age group having to repay student loans, where the payments are a considerable portion of their monthly expenses, it is becoming harder and harder to save for goals like retirement.”
That said, pausing retirement plan contributions could mean giving up a lucrative tax break, since traditional 401(k)s and traditional IRAs are funded with pre-tax dollars. There’s also the possibility of leaving free money on the table if your employer offers a 401(k) match. And of course, there’s the danger that halting retirement plan contributions will leave you short on savings once your career ends.
Rather than put retirement plan contributions on the back burner to focus on student loan repayment, D’Andrea says older borrowers should figure out what their monthly budgets look like and see if there are ways to cut back on expenses.
That said, some employers may offer a student loan match in lieu of a traditional 401(k) match. If your workplace offers this benefit, it’s one you may want to look into.
One advantage older borrowers may have is a fair amount of equity in their homes. And borrowers 50 and over may be reaching the point where their children are growing up and moving out.
Downsizing out of a more expensive home could free up equity that can be used to repay student loan balances sooner. And if there’s limited equity, reducing your housing costs could make it easier to get ahead of your student debt while also finding the money to fund your 401(k) or IRA.
See if it pays to refinance your student debt
If you can’t cut back on expenses, or if doing so only minimally helps you repay your student loans more quickly while saving for retirement, then D’Andrea suggests looking into refinancing. This especially makes sense when you borrowed privately.
If you’re still carrying federal student loans, it may not make sense to refinance them. Not only do federal loans tend to offer competitive interest rates, but they also come with different protections that private loans are not guaranteed to offer.
Joseph Patrick Roop, President at Belmont Capital Advisors, suggests using these protections to your advantage.
“In some cases, refinancing can help ease the monthly burden. For others, especially those with federal loans, income-driven repayment plans or even loan forgiveness programs might make sense, even for folks in their 50s or 60s,” he says.
The key is to have a plan
It’s natural to get down on yourself for carrying student loan debt later in life. But Roop insists that you shouldn’t
“Do not be ashamed that you have student loan debt into your 50s, 60s, or even retirement years, as it is more common than most people realize,” he says. “Many folks took on loans to help their kids through school or went back to finish their own degree. There’s no shame in it, but there does need to be a plan.”
If it doesn’t seem like you’ll be able to pay off your student loans ahead of retirement, you still have options. Those could include working a bit longer, working part-time as a retiree, or making lifestyle changes in retirement (which could include relocating to stretch your income).
“Ultimately, it’s not just about getting rid of the loan,” says Roop. “It’s about putting together a plan that includes your debt, Social Security, retirement income, and taxes. You can still retire comfortably with student loan debt, but it takes a clear plan and the right guidance.”
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