Can we retire in 6 months with $190,000 in student debt?


Dear Penny,

I’m in big trouble. My husband and I have a combined student debt of $190,000 and plan to retire in six months.

My husband wants to sell our house and pay off the debt. If we do that, we won’t have much for a down payment on another house, so we won’t have a low mortgage payment. If we don’t sell, we can pay student loan repayments. But we will be very limited, with no extra money to save for emergencies.

To help. I have many sleepless nights trying to find the best solution to this.


Dear H.,

If you could make a serious dent in your balance by working another year or two, that’s something to seriously consider. But the reality is that $190,000 is a lot of money. Delaying retirement for a few years may not be enough to make meaningful progress.

About 20 percent of the federal government student loan debt is owned by people aged 50 and over. Telling millions of people like you and your husband that they have to work forever just isn’t a viable solution.

I contacted Betsy Mayotte, president and founder of the association The Institute of Student Loan Counselors, to discuss strategies for people approaching retirement with large student loan balances. She has advised thousands of student borrowers on how best to manage their debt. She pointed out how common your dilemma is.

Robin Hartil [ The Penny Hoarder ]

“I think a lot of people don’t realize that student loan debt isn’t just a young person’s problem anymore,” Mayotte said. “I get questions similar to this all the time.”

The options you have depend on several factors. First of all, are these federal loans, private loans or a combination of the two? Second, if you have federal loans, is the debt from your own education or did you take out Parent PLUS loans for your children? While many baby boomers are in debt because they paid for their children’s education, many have loans because they went back to school during the Great Recession, according to Mayotte.

It is only on rare occasions that student loans can be discharged in the event of bankruptcy. You probably wouldn’t be a good candidate for bankruptcy since it looks like you have a decent net worth.

Unfortunately, there are no great relief options if you have private loans. Selling your home and downsizing so you can pay off your balance, or at least a large portion of it to make your payments more affordable, may be your best bet.

But if you have federal loans, you have several options. Instead of paying off your loans, a better alternative may be to keep your monthly payments as low as possible, even if that means you’ll never be completely out of debt.

If you have federal loans, including Parent PLUS loans, Mayotte suggests looking at a program called income-contingent repayment. You will need to consolidate your loans to enroll. The upside is that your payment will be 20% of your disposable income, which will likely be lower once you retire.

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“They renew their application every year and if their income goes down, the payment goes down,” Mayotte said. “If their income increases, the payment increases. If they still have a balance after 25 years, the balance is forgiven.

You have even more options if you have federal loans you took out for yourself, including income-based repayment, Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). These programs reduce your loan repayments to 10-15% of your discretionary income and also provide a discount at the end of the repayment period, which is between 20 and 25 years.

Traditionally, the canceled balance on all of the federal student loan programs I mentioned has been treated as taxable income for the year the debt is forgiven. But thanks to COVID-19 relief measures, any balance canceled by 2025 is not treated as taxable income. Moyette would not be surprised if Congress eventually extends this tax break. But if you choose to enroll in a program that offers forgiveness, she suggests preparing for the worst but hoping for the best, because 20 to 25 years is a long way off.

If you took on some of this debt for your children, it might be time to look beyond relief programs and ask your children if they can help you with the payments. “It’s a tough conversation, but sometimes it’s a conversation that needs to happen,” Moyette said.

Assuming you have options for lowering your monthly payments, it really comes down to personal preference. If you think you’ll sleep better knowing you don’t have that balance hanging over you, it may be best to downsize and pay it off, even if it means having a mortgage payment.

But there’s nothing wrong with treating this debt as a chronic disease that has no cure, but can still be managed. If you can make peace with this debt and are able to limit the damage to your monthly payments retirement budgetthis may be your best option.

Robin Hartill is a Certified Financial Planner and Senior Writer at Penny Hoarder. Send your tricky money questions to [email protected].


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