Can we retire in 6 months with a $ 190,000 student loan?


    Dear Penny,

    I’m in big trouble. My husband and I have a combined student loan of $ 190,000 and we were planning to retire in six months.

    My husband wants to sell our house and pay off the debt. When we do that, we don’t have much to pay for a down payment on another house, so we don’t have a low mortgage payment. If we don’t sell, we can afford the student loan payments. But we will be very limited and we will not have any extra money left to save for emergencies.

    Help. I have many sleepless nights trying to find the best solution for it.


    Dear H.,

    If you could seriously damage your balance for an additional year or two, this is something you should seriously consider. But the reality is that $ 190,000 is a lot of money. Postponing retirement by a few years may not be enough to make significant progress.

    About 20% of federal student loan debt is held by people over the age of 50. Telling millions of people like you and your husband that they have to work forever just isn’t a workable solution.

    I reached out to Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit, to discuss strategies for people retiring with serious student loans. She has advised thousands of student loan borrowers on how best to manage their debts. She emphasized how common your dilemma is.

    “I don’t think a lot of people realize that student loan debt is no longer just a problem for young people,” Mayotte said. “I keep getting similar questions.”

    The options available to you depend on several factors. Are these federal loans first, private loans, or a combination of both? Second, if you have federal loans, did the debt come from your own education or did you take out Parent PLUS loans for your children? While many baby boomers are in debt because they paid to educate their children, many are in debt because they went back to school during the Great Recession, Mayotte said.

    Only in rare cases are student loans deductible in bankruptcy. You probably wouldn’t be a good bankruptcy candidate as it sounds like you have decent home equity.

    Unfortunately, there aren’t any great relief options when you have personal loans. Selling your home and downsizing so you can pay off your balance, or at least a large portion of it, to make your payments more affordable can be your best option.

    But when you have federal loans, you have several options. Instead of paying off your loans, a better alternative might be to keep your monthly payment as low as possible, even if it means you will never be entirely debt free.

    If you have federal loans, including Parent PLUS loans, Mayotte suggests considering a program called income-based repayment. You need to consolidate your credit to sign up. The advantage is that you have paid out 20% of your disposable income, which is likely to be less when you retire.

    “They reapply every year and when their income goes down the payment goes down,” Mayotte said. “As their income increases, the payment increases. If you still have a credit after 25 years, the credit will be awarded. “

    You have even more options when you have federal loans that you took out yourself, including income-based repayment, Pay-As-You-Earn (PAYE), and Revised Pay As You-Earn (REPAYE). These programs lower your loan payments to just 10-15% of your disposable income and also offer forgiveness at the end of the repayment period, which is between 20-25 years.

    Traditionally, the balance of any federal student loan programs I mentioned are treated as taxable income for the year the debt is canceled. However, thanks to the COVID-19 relief efforts, any balance awarded between now and 2025 will not be treated as taxable income. Moyette wouldn’t be surprised if Congress finally extended this tax break. But if you do decide on a program that offers forgiveness, she suggests preparing for the worst but hoping for the best, as 20-25 years is a long way to go.

    If you ran up one of these debts for your children, it may be time to look beyond the relief programs and ask your children if they can help you with the payments. “This is a difficult conversation, but sometimes it’s a conversation that needs to be carried on,” said Moyette.

    Assuming you have the option to lower your monthly payments, it really comes down to your personal preferences. If you think you’d sleep better knowing this credit isn’t hanging over you, even if it means paying a mortgage, it might be better to downsize and pay it off.

    But there is nothing wrong with treating this debt like a chronic condition that is incurable but can still be treated. If you can make peace with carrying this debt and limit the damage to your monthly retirement budget, this may be your best option.

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


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