Know your loan details and loan servicer

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Know your loan details and loan servicer

When many people think of defaulted student loans, the image that first comes to mind is of a young person not long out of college.

But government data show that a growing number of boomers and retirees are suffering under the weight of student loans they can’t afford to repay.

According to a 2017 report from the Consumer Financial Protection Bureau (CFPB), the number of people 60 and older with student loans quadrupled from about 700,000 to 2.8 million individuals between 2005 and 2015. The average debt owed by older borrowers also nearly doubled during that time, going from $12,000 to $23,500.

Most older people borrowed for college or cosigned student loans on behalf of their kids and grandchildren. But some Americans 50 and older took on debt to finance their own education or help a spouse earn a degree. Many of them now are having trouble meeting their financial obligations. Since 2015, nearly 40 percent of federal student loan borrowers 65 or older are in default, the CFPB says.

Even worse: A growing number of older borrowers have had a portion of their Social Security retirement or disability benefits seized for nonpayment of federal student loans.

The Government Accountability Office (GAO) recently reported that 114,000 older borrowers suffered such garnishments in 2015. The typical garnishment was just over $140 a month. And nearly half of defaulted borrowers were subject to the maximum garnishment, or 15 percent of their Social Security benefit.

“America’s older consumers do not deserve to have their proverbial golden years tarnished by heavy student debt or have their Social Security benefits reduced for trying to help a younger family member get a college education,” says Robin Howarth, a senior researcher with the Center for Responsible Lending.

Bone up on loan modification options

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You may be able to modify unmanageable loans and temporarily reduce your payments through a deferment or loan forbearance. These strategies allow you to postpone repayment.

For example, you may qualify for an economic hardship deferment if you are experiencing extreme difficulty paying back loans and doing so harms your ability to buy food, keep a roof over your head or purchase much-needed prescription drugs.

You also can stay out of default by keeping on top of loan details and making sure all payments are going to the right place, which is usually a student loan servicer.

Whether you have federal or private student loans, the servicer should be able to supply you with all pertinent information related to your account, including the balance due, required monthly payment, interest rate and payoff date.

Researchers at the Center for Responsible Lending say that the rise in the numbers of older Americans in default could be avoided if loan servicers provided better assistance and information to financially challenged consumers. Until such calls are heeded, it’s up to you to be proactive in reaching out to your loan servicer.

Understand your cosigning rights and obligations

If you’ve cosigned a student loan for your children or grandchildren, you’re not alone. Some 73 percent of older Americans with college debt took on loans for a younger family member, the CFPB reports. (The rest borrowed for their own education or that of a spouse).

“Unfortunately, helping your kids go to college by going into debt yourself works against your own self-interest and your ability to retire,” says Rebekah Barsch, vice president of planning at Northwestern Mutual. But such indebtedness happens all too often even though other more prudent options likely exist, she says.

“The reality is that students have choices about which college to attend. They can pick a school where tuition is $50,000 a year or one that’s $10,000 a year. Students can also get scholarships. But there are no scholarships for retirement,” Barsch says.

If you do decide to serve as a coborrower, don’t simply assume that once your family member graduates, he or she will make payments.

Be very clear with relatives about exactly who will be repaying those student loans, and spell out any agreements in writing. Otherwise, if your child or grandchild cannot make payments on time, your finances and credit could take a nosedive.

If you’re already repaying a student loan on behalf of your relatives, it’s not unreasonable to ask them to wean themselves off of your support and make the loan their responsibility. Try to establish a time frame when your burden can be lifted so you can enjoy your later years.

Additionally, be aware that some lenders, such as Sallie Mae, allow the borrower to obtain a “cosigner release,” which legally lets you get taken off the hook for a student loan under specific preset conditions.

“All of us want the best for our kids. But we have to ask the question: What really is the best for everyone involved?” Barsch says.

مارس 25, 2022

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