I’m 75 With $235K of Student Loans. Should I Default?

Pricey Penny,

I’m 75, and my husband is 83. I’ve been paying on my pupil loans for 16 years and the steadiness has gone from $200,000 to $235,000. 

I’m on an income-driven reimbursement plan and work primarily to pay my loans. My IDR fee is $1,056 as of as we speak. I additionally draw on Social Safety. Within the occasion that I default, the penalty is to connect a 15% withdrawal from my Social Safety funds, it appears extra sensible to default and pay solely $215 monthly versus greater than $1,000-plus. Your ideas?


Pricey J.,

The truth is that you simply’re by no means going to be rid of those loans. You in all probability don’t need to work till the day you die. And even should you did, it’s nonetheless extremely unlikely that you simply’d climb out of pupil debt.

However I don’t suppose it’s essential default, which might destroy your credit score on prime of placing a part of your Social Safety in danger. The higher answer is to get your pupil mortgage funds as little as doable after which make the naked minimal fee. Meaning you’ll must be OK with seeing the steadiness creep increased and better every month. Federal pupil loans are forgiven upon the dying of the borrower, so that you wouldn’t want to fret about your husband or anybody else being on the hook for this debt whenever you die.

Let me make clear for readers that the recommendation I’m about to provide applies to federal loans solely — and because you’re on an income-driven reimbursement plan, your loans are clearly federal. Sadly, these with personal loans have far fewer choices for aid. Anybody studying who’s battling personal pupil loans ought to contact their servicer to see what choices can be found.

In your scenario, I wouldn’t be making mortgage funds in any respect so long as federal pupil mortgage forbearance is in impact. Benefiting from 0% rates of interest to knock out as a lot principal as doable will make sense for some debtors who plan to repay their loans in full, particularly in the event that they don’t have any high-interest debt. However since your objective ought to be to make your funds as little as doable, clearly, you’ll need to pay $0 a month for so long as doable.

So long as forbearance is in impact, all these $0 funds nonetheless depend as on-time funds for income-driven reimbursement plans. You possibly can contact your servicer to request a refund for any funds you’ve made since March 2020. If any of your pupil debt consists of personal loans, use the refund out of your federal loans to knock out as a lot of the steadiness as doable.

That’s a short-term repair, after all. As of this writing, forbearance was scheduled to finish Aug. 31, 2022. I wouldn’t depend on this deadline being prolonged once more. However provided that it’s already been prolonged six instances, I actually wouldn’t be shocked if debtors get one other reprieve, both.

Long run, the simplest answer is to cease working. You’re on an income-driven reimbursement plan, which signifies that your funds are capped at 10% to twenty% of your discretionary earnings, relying on what kind of plan you’re enrolled in.

It sounds such as you earn a fairly respectable quantity in case your funds are $1,056, and I’m guessing you’re paying additional every month. In case you retired, your discretionary earnings would little doubt drop considerably, which might decrease your funds as properly, since they’re primarily based on earnings and household dimension as a substitute of the mortgage steadiness.

A household of two residing within the decrease 48 states with an adjusted gross earnings of $40,000 may anticipate month-to-month funds between $104 and $362. The identical household with $100,000 of earnings would pay anyplace from $604 to $1,362. However retirees who stay primarily off of Social Safety generally wind up with $0 funds. You’ll have to proceed making use of for recertification annually to maintain your mortgage in good standing.

Below income-driven reimbursement plans, your remaining pupil mortgage steadiness is usually forgiven after 20 years, although for some plans, it’s solely forgiven after 25. You’ve been making funds for 16 years already, so it’s doable that forgiveness is in sight. Traditionally, forgiven mortgage balances have been taxable as strange earnings, however below the American Rescue Plan that handed in 2021 for COVID-19 aid, balances which can be forgiven by way of 2025 aren’t taxable. Some observers suppose it’s doable Congress will finally make this break everlasting.

You probably have well being circumstances that make working tough, chances are you’ll need to talk about together with your physician whether or not you meet the factors for a Complete and Everlasting Incapacity (TPD) discharge. To qualify, you’d must be completely unable to work. Many older debtors meet the factors however aren’t conscious that they qualify. This is without doubt one of the uncommon situations that you simply’d qualify for full forgiveness should you meet the necessities.

The likelier state of affairs, although, is that you simply’ll have to deal with these loans the identical manner you’d deal with a continual well being situation. The illness might not have a remedy, however you can also make the signs manageable.

Robin Hartill is an authorized monetary planner and a senior author at The Penny Hoarder. Ship your tough cash inquiries to [email protected]

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