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

Dear Petunia,

I’m in big trouble. My husband and I have $190,000 in student loan debt, and we plan to retire in six months.

My husband wants to sell our house and pay off the debt. If we do this, we will not have much down payment to buy another house, so our mortgage payment will not be low. If we don’t sell, we can pay student loans. But we will be very limited and there will be no extra money to be used in emergency situations.

help. I have many sleepless nights trying to find the best solution.


Dear H.,

If you can seriously weaken your balance by working for another year or two, that is something worthy of serious consideration. But the reality is that $190,000 is a lot of money. Postponing retirement for a few years may not be enough to make significant progress.

About 20% of the federation Student loan debt Held by people 50 years and older. Telling millions of people like you and your husband that they must work forever is not a viable solution at all.

I contacted Betsy Mayotte, the president and founder of the non-profit organization Student Loan Counselors Association, Discuss strategies for people who have serious student loan balances close to retirement. She has advised thousands of student loan borrowers on the best way to resolve their debts. She emphasized how common your predicament is.

“I think many people don’t realize that student loan debt is no longer just a problem for young people,” Mayotte said. “I always get similar questions like this.”

The options available to you depend on several factors. First, are these federal loans, private loans, or a combination of the two? Second, if you have a federal loan, is it your own education debt, or did you apply for a Parent PLUS loan for your child? Mayotte said that although many baby boomers are heavily in debt to pay for their children’s education, many have received loans for returning to school during the Great Recession.

Only in rare cases can student loans be forgiven in bankruptcy. You may not be a good bankruptcy candidate because it sounds like you have a good home equity.

Unfortunately, if you have a personal loan, you don’t have any good relief options. Selling your house and reducing the size of the house so that you can pay off the balance, or at least most of it, to make your payment more affordable, this may be your best option.

However, if you have a federal loan, you have multiple options. Rather than repay the loan, a better option might be to keep your monthly repayment as low as possible, even if it means you will never get out of debt completely.

If you have federal loans, including Parent PLUS loans, Mayotte recommends that you consider a plan called income or repayment. You need a consolidated loan to register. The advantage is that your payment will be 20% of your disposable income, which may be lower after you retire.

“They reapply every year, and if their income decreases, the payment will also decrease,” Mayotte said. “If their income increases, payments will increase. If they still have a balance at the end of 25 years, they can be waived.”

If you have your own federal loan, you have more options, including income-based repayments, pay-as-you-go (PAYE) and revised pay-as-you-go (REPAYE). These plans keep your loan repayments as low as 10% to 15% of your disposable income, and also provide forgiveness at the end of the repayment period (20-25 years).

Traditionally, all the balances forgiven in the federal student loan program that I mentioned are treated as taxable income in the year the debt was forgiven. However, due to COVID-19 relief measures, any balance exempted between now and 2025 will not be considered taxable income. If Congress finally extends the tax relief, Moyette will not be surprised. However, if you choose to participate in a program that offers forgiveness, she recommends preparing for the worst, but preparing for the best, because 20 to 25 years still have a long way to go.

If you incur any of these debts for your child, it may also be time to go beyond the relief plan and ask your child if they can help you pay. “This is a difficult conversation, but sometimes it is a conversation that needs to be carried out,” Moyette said.

Assuming you can choose to lower your monthly payment, it really depends on your personal preferences. If you think you know you will sleep better without this balance, it may be better to downsize and pay off, even if it means paying a mortgage.

However, there is nothing wrong with viewing this debt as an incurable but still manageable chronic disease.If you can live in peace with the debt and you can limit the damage to you every month Retirement budget, That may be your best choice.

Robin Hartill is Penny Hoarder’s certified financial planner and senior writer.Send your tough money questions to [email protected].

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