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By Kaitlin Mulhere
April 8, 2021
A retiree is resting on a graduation cap.
Pete Ryan for Money

Sabrina Elliott is a bit afraid to sit down and calculate out how much longer she has to work before she’s able to afford retirement. It’s not that she hasn’t pictured life after leaving the working world; she’s long dreamed of a retirement near the beach.

But there’s a big, glaring spot of red in that vision of her golden years: student debt. More than two decades into her career, the Charlotte, North Carolina resident still owes roughly $1,400 a month in federal student loan payments from two degrees she earned in the 1990s.

“From a retirement perspective, do I have savings? Yes. Would I say it’s a sufficient amount? No," she says. “Some of the money I would ordinarily like to invest or put toward retirement, I’m still using for student loans."

Her challenge isn’t unusual. While most student debt is held by people in their 20s and 30s, federal data show that nearly 8.5 million borrowers are 50 years and older. Baby boomers, those aged 56 to 74, held an average loan balance of $40,512 last year, according to data from Experian.

Borrowers aged 50 and up now owe a combined $336 billion, about 20% of the federal student loan portfolio. That’s up from 10% about 15 years ago.

Gone are the days of assuming that college debt is a problem only for the young professional crowd. Student loans, and the long-lasting burden they bring with them, now extend across generational lines. Parents borrowing to help pay for their children’s education are a big driver of this, but there are also many older borrowers who are still paying off loans for their own education, as Elliott is.

“The fastest growing segment of borrowers has been older adults,” says Joe Valenti, senior strategic policy advisor at the AARP Public Policy Institute. “The share (of debt) has grown, the dollar amounts have grown, and it’s really a challenge as they’re running up against the retirement clock.”

Experts say it's tough to offer any hard and fast rules to borrowers in this situation, because so much of retirement planning and debt repayment is influenced by individual scenarios. While bringing student loans into retirement is far from ideal, it's becoming the norm for a growing number of older adults. If you plan for it carefully, experts say, it can be manageable.

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How to balance retirement savings with paying down student debt

EIliott started out with a comparatively small amount of debt — about $10,000 for her undergraduate degree from the University of Virginia and then $60,000 for law school at North Carolina Central School of Law.

But in the years that followed her graduation in 1998, she worked in lower-paying and non-profit jobs, including a job at the city of Charlotte working in housing administration. She made less than $40,000 a year, and while that would have been enough to meet her basic needs in the low cost-of-living area, it wasn’t enough to afford repaying her debt.

Public Service Loan Forgiveness, which allows borrowers working in non-profit positions to have their loans forgiven after 10 years of payments, did not exist yet. Neither did most of today’s income-driven repayment plans, which lower payments based on what you’re earning.

So, Elliott deferred her loans, postponing payments even as her loans continued to grow with an 8% interest rate. She wasn’t living lavishly. She didn’t even take a vacation until 2009. She just didn't feel there was enough money to pay down her student debt and manage her other living expenses.

Years later, when she decided to leave non-profit work for the higher-paying corporate world, she finally started earning an impressive salary. But she chose to focus first on building up a rainy day fund and playing catch up with retirement savings. After hearing friends and colleagues talk about their savings and investments, Elliott wanted to try to make up for lost ground, she says.

“I felt like, if I don’t start saving for retirement now, when I get older what am I going to do?” she says. “I can’t rely on my parents. I’m a single woman. The responsibility falls squarely on me.”

These were good moves. Financial advisors often recommend prioritizing emergency savings, since without it you risk going into debt if your car needs fixing, for example, or if you get an unexpected medical bill. And it was smart to catch up on retirement savings, to harness the power of compound interest.

Interest works in your favor when you're saving, but against you when you're in debt. What would have been ideal, experts say, is if Elliott could have put at least a couple hundred dollars a month toward the interest on her loans, so her balance wouldn't have ballooned so much.

By the time she turned her attention to paying off her loans, in 2013 — a full 15 years after her law-school graduation — her debt had grown to $200,000. As of 2020, she’s paid some of it down, though it’s been hard to shrink the total with that 8% interest rate. She now owes about $166,000.

So here she is, with a mortgage that’s paid off and more than $500,000 in two 401(k) accounts, but a massive debt load hanging over her head. If she’s able to continue paying at the rate she is now, she’ll pay it off in 2035.

Elliott knows there’s a personal responsibility to repaying debt. She doesn’t disagree with those who say that borrowers should have to repay their debt, since they chose to take it on.

But “in my mind, I think I’ve paid for it,” she says, noting how years of $1,400 monthly payments has added up. “I’ve paid for that principal two times over.”

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What can borrowers on the cusp of retirement do to prepare?

Valenti, with the AARP says, the most important thing for older borrowers to know, as simple as it sounds, is the details of their student loans. Federal student loans come with a lot of flexibilities that private student loans do not, and even among federal loans, there are differences. Student loans taken on for your own education, for example, have more repayment options than the federal Parent PLUS loans.

In other words, the type of student debt you have is going to affect the sort of options you have for planning for retirement with debt.

One vital benefit of federal loans is the death and disability discharge. Older borrowers have to keep up with their federal loan payments, but they don’t necessarily have to stress about paying off their entire balance, because they won’t be leaving their family with a burden in the same way they could could with other debts, Valenti says.

“Not making mortgage payments or not saving for retirement could affect you and your family in a way that an unpaid [federal] student loan balance cannot,” he says. Private debt, on the other hand, can be inherited by your family members, depending on the when the loan was borrowed and the terms at origination.

Regardless of the type of debt you have, you’ll need a retirement budget that includes whatever payments you have to make toward your debt, says Melissa Ridolfi, senior vice president of Retirement and Cash Management at Fidelity Investments.

Start by mapping out what money you’ll have coming in during retirement — whether that’s Social Security, withdrawals from retirement accounts, earnings from a part-time job or a combination of all three. Then document all of your essential monthly expenses for items like food, housing, and medical expenses, as well as the costs of anything you’d like to do in retirement, like trips to see grandchildren.

“If you’re bringing debt into retirement, that has to be a cost that you count as part of your expenses, just like you would for other essentials,” Ridolfi explains.

If you can’t work your monthly payment into the amount of money you’re expecting to live off of in retirement, then you may need to work longer or cut back on the lifestyle you’d envisioned, she says. (Bonus tip: A very common mistake retirement planning tip is underestimating medical expenses, as a recent Fidelity survey shows. Health care prices tend to increase at a rate higher than general inflation, at around 5% a year, so be sure you can afford your student loan payments even after you’ve added more to your medical expenses budget line.)

For some federal borrowers, enrolling in an income-driven repayment plan may help them lower their student debt payments into an affordable amount based on their monthly budget in retirement. Payments in these repayment plans are based on your adjusted gross income, which will include some of your Social Security payments, as well as distributions from retirement accounts, says student loan expert and author Mark Kantrowitz. Note that if you borrowed Parent PLUS loans, those are not eligible for the most generous income-driven repayment plans.

Borrowers who are unsure of what repayment plans are available, or which is best for them, can check out a new tool launched by the AARP. It's designed specifically to help the 50-plus population navigate their repayment options and identify opportunities for loan forgiveness.

The dangers of bringing student debt into retirement

While it's OK to retire with student debt, it's also important to note the risks that come with doing so. You never know what's going to happen in retirement, says Justin Pritchard, a financial planner based in Montrose, Colorado.

That uncertainty is why experts prefer people to enter retirement without debt. You may have unexpected health expenses or be forced out of the workforce earlier than planned, he says. Having fewer years to pad your nest egg may turn what seemed like a manageable budget at 65 into something more challenging.

"It's a difficult situation," Pritchard says. "I wish I had a super smart solution, but it’s tough when you’ve got to choose between one or the other.”

And finding yourself with unaffordable student debt in retirement can have painful consequences. A 2016 report from the Government Accountability Office found that more than a third of borrowers who were 65 and older were in default on their federal student loans, meaning they were nine months or more behind on their payments. When that happens, the federal government can garnish your wages, and take up to 15% of your monthly Social Security check to put toward your debt.

For Elliott, she’s putting “every extra dime and penny” toward her student debt that she can in an effort to pay off her loans as quickly as possible. Looking back, she says she wishes she had found some way to pay even a modest amount toward her loans when she was younger. Or when she started earning more, that she'd known to take a more balanced approach between saving and paying off debt.

“The whole notion of having to pay student loans in retirement, to me, signifies that I can’t retire,” she says. “I just can’t imagine being 65, 70, 75 years old and still paying a loan.”

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