Retiring with student loans? What to do first

Student loans are not just a young person's problem. In fact, troubling data shows a growing number of senior citizens are still paying back educational loans -- either if they have already gone to college, or loans they took on behalf of their children.

In fact, a 2019 report from the AARP found that Americans aged 50 and over owed 20% of the total outstanding student loan debt in the U.S., with collective debt among people in this demographic group totaling around $289.5 billion. Older data from the Consumer Financial Protection Bureau also revealed that Americans aged 60 and older account for 6.4% of student loan borrowers.

Owing money on student loans in your 50s, 60s or 70s can be a substantial burden. Retirees are often on a fixed income, which makes affording monthly payments difficult. Seniors who are already retired or approaching retirement should explore their options for managing debt. This includes deciding whether it makes sense to refinance student loans.

HERE'S WHY MORE EMPLOYERS ARE OFFERING STUDENT LOAN REPAYMENT ASSISTANCE

Undergraduate student loans are just the tip of the iceberg when it comes to paying for college. Loans for graduate school, medical school or law school can also pile onto the already-long life of the loan. While you do have repayment options, it may be beneficial to consider these courses of action to make sure your school loans don't heavily impact you upon retirement.

Refinancing student loans as a retiree

The best approach to deal with your student loans as a pre-retiree or a current retiree depends on what type of loans you have. Federal and private student loans both ease the burden when paying for college, but it's important to note the difference, Federal loans are created by the government with particular terms, and private loans come from banks or other state-based organizations with their own terms.

Private loans can sometimes be deferred until after you complete schooling, and usually require a favorable credit score or a cosigner. Conversely, two types of federal loans – parent and student loans – have payments that can be deferred until the student is finished with school.

Federal parent loans, though, solely place payment responsibilities on parents. These loans require a credit check, while standard federal loans do not. Federal loans come with many borrower protections, too, including flexible payment options. As a result, refinancing federal student loans usually isn't advisable. However, you will want to explore repayment plans and chose one that works for your retirement budget.

If you have private student loans, however, the calculation is a little different. You don't give up borrower benefits by refinancing since your loans are already held by a private lender. You'll simply be refinancing with another private lender. And if you can reduce your interest rate and repayment cost, there's little or no downside to doing so.

Refinancing can help make student loan payoff easier, as reducing your interest rate lowers the cost of borrowing. You can pay off your loans more quickly and easily if you don't owe as much in interest. You may be able to pay them off before retiring, or soon after.

Since refinancing student loans allows you to change your repayment term, you can make the decision to either choose a shorter payoff timeline than your current loans if you want to become debt-free faster or a longer one to drop your monthly payment as much as possible.

Federal student loan forgiveness

President Joe Biden may also take steps to help student loan borrowers, such as forgiving some federal debt. He has the backing of many Democratic politicians, and Sen. Elizabeth Warren (D-Mass.) has made an aggressive push for student debt to be alleviated based on household income.

Canceling student debt, or some form of student loan forgiveness, continues to be a hot topic on both sides of the political aisle. The Biden administration announced in March the suspension of federal loan payments from just over a million borrowers.

"Our goal is to enable these borrowers who are struggling in default to get the same protections previously made available to tens of millions of other borrowers to help weather the uncertainty of the pandemic," Department of Education Secretary Miguel Cardona said in a statement.

Those who have a temporary reprieve on making monthly payments may wish to use this time to pay more toward private loans. Or, you could opt to pay federal loans anyway, with the entire payment going to principal.

CAN'T AFFORD STUDENT LOAN PAYMENTS? TRY THESE 4 THINGS

Create a big picture plan for dealing with student loan debt in retirement

Whether you refinance your private student loans or have federal loans to pay, or both, it's helpful to have a plan for when and how to tackle your student debt before or during retirement.

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