Student Loan Forgiveness for Seniors: How in the world are you supposed to enjoy a secure retirement with so much student loan debt? Most questions the seniors ask themselves these days. In this article, I will be highlighting quick tips for your student loan forgiveness as a senior.
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Tips for Student Loan Forgiveness 2021 for Seniors
The issue of student loans is all everyone has to talk about. So much in the society, and so many defaulters mostly seniors. Being a senior and having so much student loan debt can be very devastating.
Therefore very few people are talking about the severe strain that happens when you have student loans as a senior.
They are many reasons to take out a student loan, this includes; borrowing their children too, taking out loans for a second career. Also, you might borrow to get that master’s degree you always wanted.
Regardless of your student loans are for your child’s education or yours? There is a massive dearth of good information on what to do with student loans over 50. Below are listed few;
Structure Your Student Loans in an Optimal Way
First, let’s talk about what to do if you have Parent PLUS loans. If that’s all you owe, you need to consolidate this debt into a Direct Consolidation Loan for Parent PLUS loans.
When you leave your Parent PLUS loans alone, then you will not be able to pay based on your income. If you owe student loans over age 50 and you have six figures, you need all the tools in your toolbelt you can find.
Consolidation with the government does not affect the interest rate, and your debt gets more payment options.
If you consolidate Parent PLUS, you want to make sure that they stay completely separate from your other federal debt. Otherwise, you could lose access to payment plans that only ask for 10% of your income instead of 20%.
Max Out All Your Retirement Accounts
Vanguard found in a 2018 study that only 13% of employees maxed their 401k accounts. When you are over age 50, you get an additional $6,000 you can contribute on top of the $19,000 everyone else can put in.
That means as an employee over 50 years old, you could contribute $25,000 to retirement. If you’re married, your spouse can contribute the same if he or she is also employed and covered by a retirement plan.
Note that if the loans were Grad PLUS or Stafford, you will be eligible for payments that would be 10% of income with a higher deduction of 150% of the federal poverty line instead of 100%.
Clearly, if you’re a senior citizen student loan borrower, you need to be focusing on your own retirement savings over paying down your student loans.
Use Forbearance Strategically
Let’s say that even after saving for retirement, but you still have to make monster student loan payments because your income is very high. You plan on living off your Social Security and modest retirement savings after paying off your mortgage.
In that case, you might have the highest payments on your student loans ever in the last few years you work since payments are calculated on income.
You get up to three years of forbearance on student loans. Of course, forbearance compounds your interest. If you plan to pay down your loans, this is a bad strategy. In fact, if you owe less than $50,000, you should probably refinance your loans.
However, when your debt to income ratio is above a certain level, you should start thinking of your student loans as a tax obligation rather than a debt obligation.
You can make payments that are a percentage of your income on the federal debt. That allows for lots of strategizing on how to reduce that tax payment.
Spend Assets First and Delay Claiming Social Security
Here’s a massive hack for student loan payments over age 50 that financial planners are clueless about. If your Modified Adjusted Gross Income (MAGI) is above certain levels then your social security is taxable.
However, only half of Social Security income gets included in MAGI.
Hence, if they had only $200,000 of assets, they could probably make that last five years or so before the money runs out. At that point, they’d rely on juiced Social Security payments.
Even if they had $200,000 of federal student loans with a net worth of 0, this couple could retire in their mid-60s instead of working until they’re six feet under.
Hence, any borrower with huge student loans over 50 years old should focus on having enough money to retire and spend it all until claiming Social Security at 70.
Utilize Special Strategies for Student Loan Forgiveness For Seniors Citizens
While it sounds great to pay as little as $0 per month on federal student loans. There’s got to be a catch you must be thinking, and there is.
Unless your forgiveness is under the generous PSLF program, you must pay income taxes on the forgiven debt after 25 years of payments.
Income-driven plans allow forgiveness after 20 years, but realistically you’ll want to draw it out as long as possible if your debt to income ratio is very high.
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They are other means of getting a student loan forgiveness in 2021, this includes;
- Disability discharge for 90-year-olds with student loans
- Getting an Insolvency Exclusion
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