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    How To Manage Student Loan Payments In Retirement

    If you are on a fixed income in retirement, you may want to take advantage of options that can get your student loan payments to a more manageable level and help you avoid falling behind.
    By Ashley Norwood - Updated: June 18, 2015

    What You'll Learn

    • Ways to lower your student loan payments.
    • Different income-driven repayment options.
    • Consequences of not repaying student loans.
    A man and woman taking a selfie

    If you are an older student loan borrower, you aren't alone. In the last 7 years, the number of borrowers over 50 years old has increased 130%—to 6.9 million people overall. That means 16% of all borrowers are a lot closer to their last day at work than their first. (Or so they hope!)

    Borrowers planning to retire soon must balance their loan payments with their savings goals, while those who have finished working must fit those payments into a fixed budget. Doing either is challenging, but fortunately, a number of options exist to help you meet your retirement goals and stay on top of your payments.

    Postponing Payments

    Borrowers who meet certain criteria may be able to temporarily pause their payments with deferment or forbearance. If you are having trouble making your student loan payments, you may jump at the chance to take a break from them. This may not be the right choice for you, though—especially if you're nearing or in retirement.

    Deferment and forbearance are both short-term solutions, and they can be very helpful if you're dealing with a period of financial hardship or unemployment. However, as you get older and your income becomes fixed, you may be better off considering longer-term options, like changing your repayment plan. This will help you get out from your debt, as opposed to putting it off.

    Lowering Your Payments

    Federal student loans are a bit unique when it comes to repayment. Borrowers may be able to choose from a number of different repayment plans, including those that base your monthly payment amount on your income. These income-driven plans forgive your remaining debt after 20 or 25 years, though the forgiven amount would be taxable.

    Once you are in retirement and living on less income, you may be eligible for a much lower student loan payment—or no payment at all. Yes, under these plans, payments can be as low as $0 per month, which may let your budget relax a bit during your retirement as well! If you choose one of these plans, just don't forget to reapply for it annually.

    Income-Driven Repayment Plans

    Currently, you may apply for four different income-driven repayment plans. Each has different eligibility requirements, and you can see if you might qualify and estimate your potential payments under each here. Here's a quick overview of these options; if you're interested in any of them, you'll want to complete this form and contact your loan servicer.

    Repayment Option

    Monthly Payment Limit

    Partial Financial Hardship Requirement

    Loan Term

    Eligible Loans

    New Borrower Requirement

    Old income-based repayment (IBR)

    15% of disposable income

    Yes

    Forgiveness after 25 years

    Both Direct and Federal Family Education Loans (FFELP)

    No

    New IBR

    10% of disposable income

    Yes

    Forgiveness after 20 years

    Direct Loans

    New borrower as of July 1, 2014

    Pay As You Earn

    10% of disposable income

    Yes

    Forgiveness after 20 years

    Direct Loans

    New borrower as of October 1, 2007 and have a disbursement on or after October 1, 2011

    Income-contingent repayment (ICR)

    20% of disposable income

    No

    Forgiveness after 25 years

    Direct Loans*

    No

    *Parent PLUS loans are not eligible for any of these income-driven plans. However, if you consolidate your Parent PLUS loan through the Direct Loan program, you will then be able to repay it under ICR.

    Default Consequences

    Failing to repay your student loans comes with a few different consequences. First, late payments can leave bad marks on your credit report, though that might not worry you too much if you're not planning to find a new job, rent a place to live, or purchase a summer home or boat in retirement. (Hopefully, you can enjoy those golden years a bit!)

    If your federal student loans hit 270 or more days past due, they will enter default. Once this happens, you may have your wages garnished. This means that if you are working, your employer may be required to deduct a portion of your paycheck to repay your student loans. This can affect how much you're able to contribute to your retirement fund.

    Similarly, if you receive Social Security payments, these may be decreased as well. After the deduction, you must still receive a minimum of $750 per month. Unfortunately, this is approximately $230 below the poverty level guideline for a single person. (Legislation that would adjust this amount for inflation has been introduced, but not passed.) This deduction can be devastating for those whose income depends on these payments, so if you're running into trouble with your loans, be sure to investigate the options above immediately.

    Por Ashley Norwood - Actualizado: 18 junio 2015
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