STUDENT LOAN DEFAULTS CAN WREAK HAVOC ON RETIREES
No one could have foreseen the convergence of two of the most consequential economic events in our history – the mass migration of the Baby Boom generation into their final life stage and the tectonic shift of a declining global economy.
Unhinged stock market volatility, rising health care costs and historically low interest rates on savings have caused millions of pre-retirees to rethink their plans and their vision, especially as they consider the prospect of having to stretch their retirement income over 25 or 30 years. As if that weren’t enough, now tens of thousands of retirees are finding that their only real safety net is threatened as a result of their decision to default on their student loans.
What Should Senior Debtors Do?
Retirees facing tough decisions about their finances need to consider the long-term consequences of defaulting on student debt. Not only will a default result in automatic deductions from your Social Security check, it will also make it difficult to find employment or obtain financing if either become necessary at some point.
It would be better to look for an additional source of income, perhaps through part-time work or even refinancing a mortgage.
Additionally, retirees can also look into the Income-Based Repayment (IBR) program which can reduce your payment or cap it at 15 percent of their income. As long as payments are made on time, the loan balance is forgiven after 25 years.
If a retiree can find full-time employment (30 hours per week) in certain public services, such as a public library, military organization, emergency service, child or elderly daycare, etc., the Public Service Loan Forgiveness (PSLF) will forgive the loan after 10 years of payments. The PSLF program can be combined with IBR to keep payment low.
The unfortunate position of these retirees should provide valuable lessons for mid-life adults considering taking on student debt, either for their children or for their own continuing education. Parents especially should consider the viability of financing their children’s college education.
Early planning and savings are the obvious solution for parents who are intent on sending their children to college; however, for parents who aren’t financially prepared, other options, such as community colleges and less expensive, and local public colleges can provide a quality education without the added financial stress.