I’m 75 and I have $235,000 in student loans. Should I default?

Dear Penny,

I am 75 years old and my husband is 83 years old. I’ve been paying off my student loans for 16 years and the balance has gone from $200,000 to $235,000.

I am on an income-tested repayment plan and work primarily to pay my loans. My IDR payment today is $1,056. I also relate to Social Security. If I default, the penalty is to include a 15% deduction from my social security payments. It seems more practical to default and only pay $215 a month instead of more than $1,000. Her thoughts?

-J.

Dear J,

The reality is that you will never get rid of these loans. You probably don’t want to work until the day you die. And even if you did, it’s still highly unlikely that you’d be able to get out of college debt.

But I don’t think you need to default which would destroy your credit if you invest some of your credit social insurance in danger. The better solution is to keep your student loan payments as low as possible and then make the absolute minimum payment. That means you have to be content with the balance creeping higher and higher each month. Federal student loans are forgiven on the borrower’s death, so you don’t have to worry about your husband or anyone else being on the hook for that debt when you die.

Let me be clear for readers that the advice I’m about to give applies only to federal loans – and since you have an income-based repayment plan, your loans are clearly federal. Unfortunately, private borrowers have significantly fewer relief options. Anyone struggling with personal student loans should contact their servicer to see what options are available.

In your situation, I wouldn’t make any loan payments at all until then Forbearance for federal student loans is in effect. Using 0% interest rates to pay off as much principal as possible makes sense for some borrowers who want to pay off their loans in full, especially if they don’t have high-interest debt. But since your goal should be to keep your payments as low as possible, you naturally want to pay $0 a month for as long as possible.

As long as the forbearance is in effect, all of those $0 payments still count as on-time payments for income-based repayment plans. You can contact your servicer to request a refund for any payments you’ve made since March 2020. If your student debt is from private loans, use the reimbursement from your federal loans to make up as much of the balance as possible.

This is of course a short-term solution. As of this writing, the forbearance should end on August 31, 2022. I would not expect this deadline to be extended again. But given that it’s already been extended six times, I certainly wouldn’t be surprised if borrowers were given another reprieve.

In the long run, the simplest solution is to stop working. you are on one income-related repayment schedulewhich means your payments are capped at 10% to 20% of your discretionary income, depending on what type of plan you’re signed up for.

It sounds like you’re making a pretty decent amount if your payments are $1,056, and I’m guessing you’re paying extra every month. If you were to retire, your discretionary income would no doubt drop significantly, which would also lower your payments since they are based on income and family size, not loan balance.

A family of two living in the lower 48 states with an adjusted gross income of $40,000 could expect monthly payments ranging from $104 to $362. The same family with an income of $100,000 would pay anywhere from $604 to $1,362. But retirees who live mostly on Social Security sometimes get payments as low as $0. You must continue to apply for recertification each year to keep your loan in good standing.

With income-based repayment plans, your remaining student loan balance is usually forgiven after 20 years, although some plans take it until 25 years to be forgiven. They’ve been making payments for 16 years, so it’s possible that a waiver is on the horizon. Historically, loan balances that have been forgiven have been taxable as ordinary income, but under the US bailout plan enacted in 2021 to alleviate COVID-19, balances that have been forgiven through 2025 are not taxable. Some observers think it’s possible that Congress will eventually make this rupture permanent.

If you have health problems that make it difficult to work, you should discuss with your doctor whether you meet the criteria for a Total and Permanent Disability (TPD) Dismissal. To qualify, you would need to be permanently disabled. Many older borrowers meet the criteria but are unaware that they qualify. This is one of those rare occasions when you are entitled to full forgiveness if you meet the requirements.

However, the more likely scenario is that you have to treat these loans the same way you would treat a chronic condition. The disease may not have a cure, but you can make the symptoms manageable.

Are you trying to get out of debt? Here are 50 ways to make some extra money this month.

Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]

This was originally published on The Penny Hoarder, which helps millions of readers worldwide make and save money by sharing unique job opportunities, personal stories, giveaways and more. The Inc. 5000 ranked The Penny Hoarder as the fastest growing private media company in the US in 2017.

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