An increasing number of seniors are entering retirement with unprecedented student debt. Two and a half million Americans age 62 and older owe a collective $103.9 billion in federal student loan debt. And Americans age 60 and older are the fastest-growing age group when it comes to student loan debt. Some of these are still paying off loans they took for own education. But the majority of older Americans’ student loan debt is for their children’s education. Of those, many are hoping for some form of student loan debt relief.
Carrying student debt can strain retirees’ standards of living, especially with inflation putting additional pressure on fixed budgets. The good news is that some of these borrowers may be eligible for some form of student loan debt relief. Public Service Loan Forgiveness (PSLF), income-driven repayment (IDR) plan forgiveness are two definite possibilities. A third possibility for relief is the Biden Administration’s debt relief executive order. However, whether or not that relief will will survive legal challenges is up in the air.
Note About Eligible Debt
Unfortunately, the formalized student debt relief programs apply only to federal student loans. However, there are other options to get relief for private student loans, such as bankruptcy. Other forms of private student loan relief may be available in specific circumstances, but you would have to learn about them directly from your lender.
Biden’s Student Debt Relief—and Where it Stands
On August 24, 2022, the Biden Administration announced sweeping student debt forgiveness of up to $10,000 for borrowers with 2020 or 2021 adjusted gross incomes of less than $125,000 or $250,000 for married couples. Borrowers with qualifying incomes who also received a Pell Grand wout receive an additional $10,000 in forgiveness. There is no age limit on this intended relief—and parent PLUS loans are fair game—so most retirees within the income limits would qualify for this debt forgiveness.
Why “most” but not “all?” While this debt relief originally included all federal student loan borrowers who obtained their loans before June 30, 2022—including those with privately-owned federal student loans through the Federal Family Education Loan (FFEL) Program and Perkins Loan Program who consolidated these loans into federal direct loans—the Department of Education reversed their position concerning this group of FFEL and Perkins Loan holders on September 29, 2022.
Now, borrowers with privately-held FFEL and Perkins Loans would not be eligible for Biden’s student debt relief, even if they consolidate these loans into federal Direct Loans. However, those who applied for such consolidation before September 29, 2022, would still be eligible.
This reversal was likely due to anticipated legal challenges from the private institutions holding these loans. However, this is not the greatest challenge facing the Biden student debt relief program.
Working Its Way Through the Courts
The Department of Education has stopped accepting applications altogether for the program in response to two significant legal challenges. Six states, Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina brought one of the challenges. They argued that the President does not have the authority to cancel student debt.
Although the District Court judge, in this case, decided the states did not have the standing to bring this lawsuit, the Eighth U.S. Circuit Court of Appeals issued a nationwide injunction on the program. The Supreme Court heard oral arguments in this case on February 28th, 2023. A ruling is expected in the summer.
Two individuals in Texas brought the second challenge. They claim that the Biden student debt relief program’s rules are “irrational, arbitrary, and unfair” in denying them the full $20,000 of student debt relief afforded others.
The District Court judge, in this case concluded that the President of the United States does not have the authority to create such a student debt relief program through executive order. The Biden administration has filed an appeal with the Fifth U.S. Circuit Court of Appeals.
So the fate of Biden’s debt relief program remains up in the air. However, the Biden administration announced November 22, 2022 that it would extend the payment pause on federal student loans until June 2023.
How to Apply for Debt Forgiveness Under Biden’s Program
If Biden’s student debt relief program survives, retirees with federal student loans other than privately-held FFEL and Perkins Loans who meet the income requirements for their filing status in either 2020 or 2021 should apply for the loan forgiveness at https://studentaid.gov/debt-relief/application by December 31, 2023. At the time of publication, this website was not accepting applications. It is worth checking back as the legal status of the program changes.
Other Relief for Parent PLUS Loans
While Biden’s student loan relief program is in limbo, other established student loan relief options are available. Some of these options are even available to parent PLUS loan holders.
For example, parent PLUS loans are eligible for discharge in a limited number of circumstances. They include a child whose education the retiree borrowed who passes away, the child’s school closed, fraudulent loans, or a child who withdrew from the school and was not paid a legally-required refund. If you believe your parent PLUS loan may qualify for discharge due to any of these, contact your loan servicer.
Parent PLUS loans can also be consolidated into a Direct Consolidation Loan and repaid over an Income-Contingent Repayment (ICR) Plan. Your payments under an ICR Plan will never exceed 20% of your discretionary income. Your remaining balance after 25 years on the plan will be forgiven.
Forgiveness For Borrowers on Income-Driven Repayment Plans
The ICR Plans mentioned above are just one of the four income-driven repayment (IDR) plans for federal student loans.
The other three options, Revised Pay As You Earn Repayment (REPAYE) Plans, Pay As You Earn Repayment (PAYE) Plans, and Income-Based Repayment (IBR) Plans are only available to individuals with federal student loans that are not parent PLUS loans.
However, there are no age limits on any of these plans, so they are available to retirees and non-retirees.
Each kind of IDR plan has different qualifications and repayment options. On thing they have in common is that the borrower’s remaining debt is forgiven after making 20 or 25 years of payments on the plan. Whether the number of years is 20 or 25 depends on:
- The particular IDR plan enrolled in
- Whether the borrower has any loans taken for graduate or professional studies in the case of a REPAYE Plan
- When the borrower first took out loans in the case of an IBR Plan
If you are retired, your income may be significantly lower than it was during your working years. Entering an IDR plan to pay as little as possible with an eye to future forgiveness may be a smart move.
Proposed Changes to REPAYE plans
On January 10th, 2023, the Biden administration proposed changes to the REPAYE income driven repayment plan that would:
- Lower the percentage of required monthly payments from 10% to 5% of a borrower’s discretionary income.
- Set monthly payments at $0 for borrowers earning under $30,500 (or $62,400 for families of four).
- Freeze interest accumulation for borrowers whose required monthly payment is less than the interest charged. In other words, borrowers who are making $0 payments would not see their balance grow.
- Automatically enroll qualified borrowers in the program.
Public Service Loan Forgiveness
Another popularly sought form of student loan relief is Public Service Loan Forgiveness (PSLF).
This forgiveness is for individuals who make 120 monthly payments in a qualifying repayment plan (such as an IDR plan) while working full-time for a government or not-for-profit. So, it’s not relevant for retired individuals unless they are willing to reenter the workforce for at least 10 years.
Note that if you have parent PLUS loans you’re looking to get discharged under PSLF, you would only qualify if you consolidate your parent PLUS loans into a Direct Consolidation Loan and enter into an ICR Plan.
You can learn more about this program here.
Other Student Loan Debt Relief Options
There are other, rarer student loan relief options, such as relief due to disability or relief due to forgery.
Student loan debt relief is an important issue for all ages but particularly older borrowers on a fixed income. While this issue plays out in the courts, seniors should seek out student loan relief where possible.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.