Student loan debt is an issue you may more likely associate with your kids than with your parents. But the reality is that education loan debt is becoming a real financial threat to seniors; Bloomberg.com recently called it the next crisis facing elderly Americans. According to the AARP, people 60 and over are currently saddled with roughly $36B in student loans – that’s a nine-fold increase since 2004.
So what’s causing the surge? The economic downturn of 2007 and rising costs of education are two huge drivers, with seniors facing the double whammy of waning income power with higher balances owed. Many who either lost jobs or significant investment income in the crisis are now still struggling to pay off their kids’ college education. Others who decided to finance mid-career continuing education are faced with a debt burden their resulting income couldn’t conquer. And while there is legislation pending to change this, federal loan terms still stipulate that debt forgiveness comes only with total and permanent disability (which is hard to prove), or death – declaring bankruptcy won’t help.
If you or a senior you know is facing insurmountable student loan debt, here are some helpful strategies to consider:
— Keep up with your payments. Should you default on your loan, the government can garnish your wages, withhold your tax refund, and even go after your Social Security benefits. From 2002 to 2013, those 60 and over whose benefits were targeted grew from 6,000 to over 36,000. Pay your installments in full and on time to avoid these penalties.
— Explore repayment options. The US Department of Education offers several types of income-driven repayment plans that can lower your monthly payments on federal loans. Payments are calculated based on 10 to 20 per cent of your discretionary income, and unpaid balances are forgiven after 20 to 25 years, as long as you’ve been paying installments on time.
— Look into consolidation or refinancing opportunities. Government consolidation loans give you the option to bundle all of your federal student loans into one monthly payment, sometimes with a lower interest rate; you may even end up with a lower monthly payment. Contact the US Direct Loan Origination Center’s Consolidation Department to learn your options.
For private student loans, try to negotiate a lower monthly payment with the lender – here are tips on how to make that happen.
Refinancing student loans are another way to reduce monthly payments, by offering a lower interest rate; sites like Student Loan Hero are a great resource for comparing lender rates and requirements.
For more ideas on digging out of student load debt, head to the AARP website.