However, it’s not all smooth sailing.

Retirees will need to engage in careful planning to minimize spending on student loans and maximize the potential for debt forgiveness.

Calculating Federal Student Loan Payments in Retirement

One of the reasons that federal student loans are preferable to private loans is the existence of Income-Driven Repayment (IDR) plans. The concept behind an IDR plan is straightforward: borrowers make payments based on their affordability, irrespective of their debt levels.

For retirees relying on Social Security, IDR plans often translate to monthly payments as low as $0. Those with a modest pension or living off savings may also qualify for very low or $0 monthly payments.

The crucial factor in determining IDR payments is the Adjusted Gross Income (AGI) from your most recent tax return. The lower your AGI, the more affordable your monthly student loan payment becomes.

To estimate your monthly payment using the latest and most cost-effective IDR plan, SAVE, you can use this calculator.

Automate $0 Payments: IDR plans are good for one year. After that year is up, borrowers must recertify their income.

New legislation now allows borrowers to authorize automatic recertification. For a borrower living on social security, this means they can qualify for $0 payments indefinitely if they select automatic recertification.

Keeping Student Loan Bills Low

The significant challenge for many retirees lies in keeping their Adjusted Gross Income (AGI) low, especially if 401(k) withdrawals play a crucial role in their retirement plan.

Withdrawing funds from a 401(k) or traditional IRA incurs taxation, leading to an increase in AGI and subsequently higher monthly payments.

Conversely, pulling money out of a Roth account, which has already been taxed, will not impact your AGI. Borrowers with both Roth and traditional IRAs may opt to rely on Roth withdrawals until their student debt is forgiven.

In certain scenarios, it might be advantageous to pack 401(k) withdrawals into a single tax year. Borrowers can use this approach to bury a single high AGI year from IDR calculations.

Sherpa Tip: Have a conversation with your financial planner regarding your student loans. Many financial planners may not be well-versed in the SAVE repayment plan and IDR calculations.

If you have significant federal student debt, this proactive planning is crucial.

Student Loan Forgiveness for Retired Borrowers

Another major perk of IDR plans is that the debt can usually be forgiven after 20 to 25 years of monthly payments.

There is no cap on the amount of debt eligible for forgiveness. However, it is possible that there may be a tax on this forgiveness. For now, this type of forgiveness isn’t taxed by the federal government, but it is scheduled to return in 2026. That said, there is hope that this tax eventually gets abolished.

Nonetheless, borrowers banking on IDR forgiveness should plan on a potential tax bill.

Estate Planning: Death and Disability Discharge

Another perk of federal student loans is that the debt does not survive your death. The federal government won’t come after your estate to collect student loan bills, and your kids will not inherit the debt.

When a student loan borrower dies, their federal loans are discharged. Likewise, if the borrower becomes disabled, the debt can also be discharged.

For this reason, borrowers shouldn’t feel obligated to pay off their debts for fear of leaving them behind for their children.

Student Loan Mistakes for Retirees to Avoid

Because student loan rules can be complicated, it is easy for some retirees to make a mistake.

Take care to avoid the following errors:

Don’t Make a Large Payment You Can’t Afford – Monitoring IDR payments and dealing with loan servicers can be a headache. However, with the available tools to keep repayment affordable, retirees shouldn’t feel obligated to pay off this debt quickly. This is especially true for those trying to get by on limited resources.

Watch 401(k) Withdrawals – If you are on an IDR plan, be careful about large 401(k) withdrawals. It could mean an entire year of higher student loan bills.

Don’t Miss IDR Certification Deadlines – If you choose not to automate certification, be certain not to miss a certification deadline. Borrowers who miss this critical deadline get placed on the standard repayment plan, which can mean massive monthly bills.

Don’t Be Afraid to Ask Questions – If your bill seems large or unaffordable, or if things appear confusing, don’t hesitate to ask for help. Servicers get paid to help borrowers navigate student debt. Feel free to leave a question in the comments if you get confused or frustrated.

The post Federal Student Loans in Retirement: Monthly Payment Calculations, Forgiveness, and Estate Planning appeared first on The Student Loan Sherpa.

It’s not unusual to get a call from someone claiming to be a lender and asking for your date of birth and the last four digits of your social security number.

This one is a tricky situation for one simple reason: it might be a scam, but the odds are good that it is legitimate.

The Most Likely Explanation

Lenders often have to call borrowers to discuss their student loan accounts.

However, lenders also need to be certain that the person they are talking to is the actual borrower.

Someone else may have answered the cell phone or landline. Thus, the lender should take some action to verify that they are not providing loan information to someone else.

By asking for your date of birth and the last four digits of your social security number, the lender can verify that they are talking to the right person.

The Concern About “Lender” Calls Asking for Identifying Information

Even though the call is probably legitimate, it is still concerning for a borrower.

We’ve seen scams in the past where the scammers know some details about the borrower and their account. They might know your name and student loan balance.

By answering the “verifying” questions, you could be giving the scammer even more identifying information.

The danger here is a potential identity theft situation.

Trusting Caller ID Information

Theoretically, you could save your lender’s contact information on your phone. If the call comes from your lender, you should be safe.

Unfortunately, it is possible to trick call ID systems by “spoofing” the number. Someone could place a call that looks like it is coming from your loan servicer, even though it is a scam.

Borrowers that wish to stay vigilant can’t rely on caller ID information alone.

Avoiding Scam Panic

The potential scam described here would be extremely complicated.

If you answered a lender call and provided identifying information, it doesn’t mean you were scammed. The most likely explanation is that you received a lender phone call. If, after providing your information, you conducted routine business regarding your loan, it probably wasn’t a scam.

If you are worried, you can always call your lender to inquire about whether or not they called you. Hopefully, they will have a record of the call happening.

The Safest Approach to Calls from Lenders

If you get a call from your lender or a bank, and they want to verify your identity, but you want to verify their identity, there are a couple of steps that can be taken.

Ideally, the lender is calling with something simple. For example, they might want you to update your contact information. In this case, you can end the phone call without providing any identifying information and update your information on their website.

Another option is to ask the caller if they have an extension where they can be reached. If they provide it, look up your lender’s contact information online. Call the lender and use the extension provided.

Going this route is probably overkill and unlikely to be necessary. Unfortunately, you never know. A few extra steps can help ensure that you don’t fall victim to a scam.

Sherpa Tip: I’ve had this conversation with my bank several times. The bank rep has always been understanding of my desire to verify and accomodated my request.

If the person who called is pushy or questions what you are doing, that is a red flag. Banks and lenders don’t want to have identity theft issues either. If anything, they should appreciate the extra security steps you are taking.

Dealing with Student Loan Scams

If you think you fell for a student loan scam, hope is not lost.

If a possible scammer has your full social security number, there are steps you can take to freeze your number and protect your identity.

Additionally, if you have fallen for any student loan related scam, there are tools and resources available to protect your interests and hold the scammers accountable.

The post Scam Alert: Lender Calls Asking for Date of Birth and Social Security Numbers appeared first on The Student Loan Sherpa.

Fortunately, it’s not as impossible as it seems.

The key to success lies in utilizing programs designed to ease the burden, such as income-driven repayment plans and student loan forgiveness. These programs are specifically tailored to provide relief for borrowers, including those depending on Social Security. For many recipients of Social Security benefits, these programs can reduce their student loan payments to zero, effectively eliminating the financial strain of monthly loan payments. This can make a substantial difference, allowing borrowers to manage their finances more comfortably.

Income-Driven Repayment Plans for Federal Student Loan Borrowers on Social Security

At first glance, Income-Driven Repayment (IDR) plans might appear confusing due to the variety of options available.

The list of IDR plans is long. Borrowers can sign up for Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving for A Valuable Education (SAVE).

While there are some subtle but important differences between the various IDR plans, the basic premise is the same. Borrowers on IDR plans only have to pay a small percentage of their monthly income towards federal student loans. These plans are all designed so that federal student loan borrowers do not have to decide between paying the electric bill or defaulting on a student loan.

The government accomplishes this goal of student loan affordability by determining a borrower’s discretionary income. Monthly payments are between 10% to 20% of a borrower’s monthly discretionary income, depending upon the IDR plan selected. (More details on IDR plan selection and strategy can be found here.)

For Social Security recipients, these plans often result in very low or even $0 monthly payments.

As a general rule, individuals and couples whose only source of income is Social Security probably will qualify for $0 per month payments. Those with additional income sources like pensions or a 401(k) may have higher payments.

A Special Note for Borrowers with Parent PLUS Loans: Parent PLUS loans are not eligible for any of the income-driven repayment plans. However, borrowers can consolidate them to gain eligibility. This article on Parent PLUS Loan Repayment for Borrowers on Social Security explains the process.

Does Social Security Income Affect IDR Student Loan Payments?

The short answer is maybe. Some borrowers will qualify for $0 payments, but others will have larger student loan bills because of their Social Security income.

The slightly more complicated answer: If your Social Security is considered to be taxable income by the IRS, it will impact monthly payments on an IDR plan. If your Social Security isn’t taxed, it won’t affect monthly payments on IDR plans.

Getting more exact will require doing some calculations.

Calculating IDR Payments for Borrowers on Social Security

The key figure used for calculating IDR plan monthly payment amounts is the Adjusted Gross Income (AGI). With the AGI amount from your most recent tax return, any borrower can use the Department of Education’s Loan Simulator to estimate monthly payments. The loan simulator provides a preview of what you might expect to pay each month under each available federal repayment plan.

Borrowers who are planning for their retirement may have to do a little more math.

Typically, taxpayers determine their AGI by summing up all gross income and then subtracting allowable deductions. However, Social Security income is treated differently for tax purposes. Depending on your overall income and tax filing status, anywhere from 0% to 85% of Social Security benefits may be considered taxable and included in your AGI.

The Social Security Administration has a nice summary of how Social Security benefits are taxed. Those who want to generate exact numbers will need to use the IRS Publication 915 to calculate the Social Security that is considered taxable income.

If none of your Social Security benefits are taxable, your IDR payments will likely be $0 per month. As the taxability of your Social Security income increases, so too will your IDR payments.

By understanding how much of your Social Security is taxable, you can use the Loan Simulator more effectively to forecast your monthly IDR payments. This planning is crucial for managing student loans efficiently while on a fixed income in retirement.

Federal Loan Forgiveness and Debt Elimination

Monthly payments only tell part of the student loan repayment story.

For many borrowers, these monthly payments are smaller than the amount of interest that the loan accrues each month. This raises a crucial question. If the loan balance is growing, how will the debt ever be eliminated?

Seniors living on Social Security and making small federal student loan payments will see likely see their debt eliminated in one of two ways.

• Student Loan Forgiveness – Borrowers on income-driven repayment plans qualify for student loan forgiveness after 20 to 25 years, depending upon their repayment plan.
• Death – If a federal student loan borrower dies, their student debt is forgiven in full. The estate will not receive a bill, and the federal government will not try to collect from an inheritance left behind or life insurance proceeds.

Thus, many Social Security beneficiaries may never have to make another student loan payment. They will have to stay enrolled in income-driven repayment, however, which requires yearly income certification. These borrowers will eventually qualify for forgiveness.

Digging Deeper: Learn how to manage student debt during your retirement.

Private Student Loan Options for Borrowers on Social Security

Private student loans offer much less flexibility when compared to federal student loans.

The terms for private loans can vary from one lender to the next. The loan contract specifies the terms between the lender and the borrower.

Generally speaking, private lenders have no special programs for borrowers on Social Security.

In most cases, repayment in full will be the only option. Occasionally, refinancing the debt with lenders like Splash or SoFi can help. However, these opportunities are limited to borrowers who can pass a credit check.

Details and tips on refinancing are available here.

The post Student Loan Repayment for Borrowers Living on Social Security appeared first on The Student Loan Sherpa.

Some seniors face huge bills and must make major sacrifices. Others, despite their best efforts, find their social security checks garnished due to student loans.

There is good news for student loan borrowers living on social security. If they take the right steps, it’s quite possible that they may never have to make another student loan payment.

Income-Driven Repayment Plans for Parent PLUS Borrowers

One major advantage to federal student loans is the availability of Income-Driven Repayment (IDR) plans. The significance of an IDR plan is that it allows borrowers to make payments based upon what they can afford rather than what they owe. For many borrowers, this means they could potentially qualify for payments as low as $0 per month.

IDR payments are calculated by determining the borrower’s discretionary income. The higher the discretionary income, the higher the monthly bill is.

Without going into the full details on discretionary income calculations, borrowers who live on social security and have no other income will likely qualify for a $0 per month payment.

However, there is a catch with Parent PLUS loans: they are not directly eligible for any federal income-driven repayment plans. Fortunately, there is a workaround. Borrowers can convert Parent PLUS loans into eligible loans by going through federal direct consolidation. After consolidation, Parent PLUS loans become eligible for the income-contingent repayment (ICR) plan.

ICR is not the best income-driven repayment plan, but it is the only option available for Parent PLUS loans. The important part to know is that ICR is eligible for $0 monthly payments.

Parent PLUS Loans vs. Other Federal Loans: Parent PLUS loans are different than other kinds of federal student loans. Borrowers living on social security who have other federal loans have more options and flexibility in repayment.

Federal Direct Consolidation

We will skip the history lesson on federal student loans that explains why federal direct consolidation is necessary for the ICR plan. This extra step is government red tape at its worst, but thankfully the consolidation process is pretty simple.

The Direct Consolidation Loan Application is available through the Department of Education’s student loan website. According to the Department of Education, it takes about 30 minutes to complete the application.

They do a nice job explaining the process, but a couple of essential details are worth highlighting:

1. Even if you have just a single Parent PLUS loan, you can still consolidate the loan.
2. Do not consolidate Parent PLUS loans with other federal student loans – the other federal loans lose their eligibility for certain repayment plans if combined with a Parent PLUS loan.

A Warning About ‘Help’ with Consolidation: There have been services that have popped up over the years, offering to help borrowers go through the consolidation process to get $0 per month payments.  These “services” are usually shut down fairly quickly by the government. Most are nothing more than a scam. Borrowers shouldn’t pay for outside help to consolidate and enroll in an income-driven repayment plan.

Three Steps for $0 Student Loan Payments for Social Security Recipients with Parent PLUS Loans

Step #1: Apply for federal direct consolidation.

Visit the direct consolidation website and fill out the form. Be sure that Parent PLUS loans do not get combined with other types of federal student loans (if you also have other federal loans). If you get confused or need help, contact your federal student loan servicer for guidance.

Step #2: Sign up for an Income-Driven Repayment (IDR) Plan

For borrowers with Parent PLUS loans, the only IDR plan that they will be eligible for is ICR. Borrowers can submit IDR applications on the Studentloans.gov website. The easiest way to verify your income is to have them automatically pull your most recent tax return. However, if your income has dropped since your last tax return, you may want to submit alternative documentation.

Step #3: Certify income every year

Your student loan servicer should remind you each year, but it is important to certify your income each year. This will keep payments low and manageable. If the monthly payment suddenly jumps up, it is likely because you missed a certification deadline. If that happens, complete the IDR request again.

How does the loan get paid off with $0 payments?

If you are making $0 monthly payments, the loan balance will only grow. Though unfortunate, it is the only option for many senior citizens on the fixed income of social security.

There are provisions to have the loans forgiven after 25 years, but the reality for many seniors is that they will certify their income yearly and never make any payments on the loan.

Estate Planning Concerns

For those worried about their federal student loans persisting after their death, there is reassuring news.

A fundamental feature of all federal student loans is that the debt is extinguished upon the borrower’s death. This means that if you pass away with an outstanding student loan balance, the government will not seek repayment from life insurance payouts or any inheritance you leave behind for your children.

The death discharge process is fairly straightforward and designed to prevent additional burdens on the borrower’s family.

Digging Deeper: Learn how to manage student debt during your retirement.

Dealing with Parent PLUS loans and Living on Social Security

The steps required for Social Security recipients to ensure their checks don’t get garnished is probably more complicated than necessary. Fortunately, jumping through a bit of government red tape will address the issue.

To make sure that steps don’t get missed, it is a good idea to have your child remind you of deadlines and help you with the paperwork. Given that you took out the loan to pay for their school, it is the least they can do.

The post Parent PLUS Loan Repayment for Borrowers on Social Security appeared first on The Student Loan Sherpa.