The number of older Americans with student loan debt – either theirs or someone else’s – is growing. Sadly, learning how to deal with this debt is now a fact of life for many seniors heading into retirement.

According to a study by the Consumer Financial Protection Bureau, the number of older borrowers increased by at least 20 percent between 2012 and 2017. Some of these borrowers were borrowing for themselves, but the majority were borrowing for others. The study found that 73 percent of student loan borrowers age 60 and older borrowed for a child’s or grandchild’s education.

 

What are your obligations as a co-signer?

 

Before you co-sign a student loan for a child or grandchild, you need to understand your obligations. The co-signer not only vouches for the loan recipient’s ability to pay back the loan, but is also personally responsible for repaying the loan if the recipient cannot pay. Because of this, you need to carefully consider the risk before taking on this 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.

If the borrower defaults and you are obliged to pay the loan back or you are the borrower yourself, you will need to manage your finances. 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 request a new repayment plan that has lower monthly payments. With a federal student loan, you have the option to make payments based on your income.

 

Does defaulting on a student loan 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 can take 15 percent of your Social Security check as long as the remaining balance doesn’t drop below $750. There is no statute of limitations on student loan debt, so it doesn’t matter how long ago the debt occurred. If you do default on a federal loan, contact the U.S. Department of Education right away to see if you can arrange a new repayment plan.

 

What happens if you die still 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 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.

 

Programs for student loan debt relief

 

More than 8 million Americans aged 50 and older have billions in outstanding federal student loan debt. Whether you have taken out these loans for yourself or for your family members’ education, there are programs to assist you through debt cancellation or other relief measures.

 

Public Service Loan Forgiveness (PSLF) Program

 

The federal government is prepared to cancel all of your remaining federal student loan debt if you have served full time for 10 years or more in a public service role – including the U.S. military, public elementary and secondary schools, or public colleges and universities, among other organizations. Find out if you are eligible for the PSLF Program.

 

Department of Education Student Loan Debt Cancellation

 

Did you take out a federal student loan for your own education or for your child’s education before July 1, 2022? Depending on your income and the types of loans you received, you may be able to cancel up to $20,000 in federal student loan debt. The U.S. Department of Education is working to set up an application process for this debt cancellation initiative regarding its forthcoming Federal Student Loan Borrower updates.

 

Payment Reprieves

 

Thankfully, many federal student loan borrowers have experienced payment reprieves for the past few years due to multiple payment pauses enacted during the pandemic by the CARES Act and other loan relief efforts.

These pauses on making payments for federal student loans are ending in August 2023, however. Interest will resume accruing on paused loans effective September 1, 2023, and student loan payments will be due in October 2023. To help borrowers get back on track with their payments, the Department of Education is implementing several programs.

Resuming Payments

 

One of the new initiatives is a yearlong “return-to-repayment” program designed to get borrowers back into active repayment status. Between October 2023 and September 2024, borrowers who miss payments will not be considered delinquent. Their loans will not be reported to credit bureaus as delinquent due to missed payments.

In addition, they won’t be considered to be in default. Although interest will still accrue, it will not be capitalized. The idea behind this program is to give borrowers time to contact their student loan servicers, explore their options, and hopefully enroll in an affordable repayment option.

Fresh Start Initiative

 

Additionally, the Department of Education is implementing a “Fresh Start” initiative. This program provides borrowers who were in default of their student loans before March 2020 with a way to get their loans out of default going forward. It allows them to request that their loans be removed from default and put back into repayment status via a simple request to their loan servicer.

This is significantly different from what borrowers previously had to do to get out of default, which often included a “trial” repayment effort before a loan was taken out of default.

The benefits of the Fresh Start program include allowing borrowers to:

  • start paying their loans again regardless of prior missed payments,
  • improve their credit scores,
  • avoid administrative wage garnishment (AWG), and
  • access income-driven repayment (IDR) options quickly. (IDR options often result in $0 monthly payments for low-income or fixed-income borrowers.)

Avoiding Administrative Wage Garnishment (AWG)

 

The ability to avoid AWG is significant. AWG can affect people at all stages of life, including seniors. AWG allows a federal agency to order a non-federal employer to withhold up to 15 percent of an employee’s wages to pay a debt owed to the agency, such as defaulted federal student loans. AWG can also mean receiving a lower tax refund or having a portion of one’s monthly Social Security benefits withheld.

However, if borrowers take advantage of the Fresh Start program prior to August 31, 2024, they can avoid a loan default that leads to AWG.

The SAVE Plan

 

In addition, the Department of Education is implementing a new IDR option in mid-2024 called the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan amends and replaces the REPAYE Plan.

Typically, the amount a student loan borrower with an IDR plan must pay depends on their income and the size of their family. Effective July 1, 2024, the SAVE Plan will protect more of a borrower’s income from monthly payments. Compared with other IDR plans, the SAVE Plan will therefore lead to reduced monthly payments. For details, check out this fact sheet from the Department of Education.

Borrowers With Disabilities May More Easily Qualify for a TPD Discharge

 

Effective July 1, borrowers with disabilities will have an easier time qualifying for a total and permanent disability (TPD) discharge. New rules allow the Department of Education to offer TPD discharges (often automatically) to borrowers receiving SSDI or SSI who:

  • have an onset of disability date five or more years ago and have been receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) based on this disability for at least five years;
  • SSDI or SSI recipients who suffer from a condition on the Social Security Administration’s List of Compassionate Allowances;
  • SSA beneficiaries receiving retirement benefits who met the requirements for a disability discharge before they retired;
  • SSDI or SSI recipients receiving these benefits based on disability with a three-year disability review period; or
  • SSDI or SSI recipients receiving these benefits based on disability with a five- to seven-year disability review period.

Disabled individuals who do not meet these criteria and wish to apply for a TPD discharge based on a doctor’s certification may now seek out certification from professionals beyond those holding an M.D. Nurse practitioners, physician assistants, and osteopathic doctors may now sign the certification verifying a borrower’s disability.

Borrowers who receive a TPD discharge in this manner will no longer be subject to a three-year income monitoring rule. However, if they apply for new federal loans within three years, they may lose their TPD discharge.

Forgiven Student Loan Debt Won’t Result in Taxable Income (For Now)

 

At the moment, student loan debt cancellation is not counted as taxable income to borrowers. This protection from additional taxes will remain in effect until December 31, 2025.

So, if you are considering applying for a TPD discharge or completing an IDR plan you previously started that would lead to loan forgiveness, now may be the time to act. However, note that this rule only applies to federal tax liability. Borrowers may still have liability under their state’s income tax rules.

For tips from the Consumer Financial Protection Bureau to help navigate problems with student loans, click here.

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