Are student loans forgiven when you reach a certain age?

Question

I turned 60 last month and have 6 credits remaining to complete my AA degree in Business Administration. I have taken out a federal student loan and have not paid any of the money back yet and have deferred payments. Is there a certain age where some of the loan is forgiven?

Answer

Federal student loan debt in the United States is not forgiven when the borrower retires or at any other age. (In the U.K., student loans that were made several years ago are forgiven when the borrower reaches age 65, but the U.S. never had a similar age write-off.)

If a borrower defaults on his or her federal student loans, the federal government may offset up to 15% of the borrower’s Social Security disability and retirement benefits to repay the student loans. A 2005 U.S. Supreme Court decision upheld the U.S. Department of Education’s authority to withhold a slice of Social Security benefit payments to repay defaulted federal education loans. More than 100,000 retirees each year have had at least one Social Security retirement benefit payment reduced to repay their federal student loans.

Borrowers who repay their federal student loans in the income-based repayment (IBR) plan will have the remaining debt forgiven after 25 years in repayment. For borrowers in the pay-as-you-earn repayment (PAYE) plan, the remaining debt is forgiven after 20 years in repayment. Under current law, this forgiveness is taxable. Borrowers who qualify for public service loan forgiveness (PSLF) will have the remaining debt forgiven after 10 years of working full-time in a public service job while repaying the student loans in the Federal Direct Loan program. This forgiveness is tax-free.

Federal education loans are cancelled when the borrower dies. Parent PLUS Loans are also cancelled upon the death of the student on whose behalf the parent borrowed. The cancelled debt is not charged against the borrower’s estate. However, if a Parent PLUS Loan is canceled because of the student’s death, the cancelled debt will be treated as taxable income to the parent on the parent’s federal income tax return.

Borrowing to pay for college when retirement is just a few years away is not recommended. Students and parents should borrow no more than they can afford to repay in ten years or by retirement, whichever comes first. If total education debt at graduation is less than the borrower’s annual income, the borrower will be able to repay the student loans in ten years or less.

People who are close to retirement should borrow less, since there’s less time available to earn enough money to repay the debt. Once the borrower retires, all the borrower’s debts should be paid off, as there is no new income in retirement, just assets. It doesn’t make sense to be paying more in interest on a loan than one is earning on retirement savings. So, if a borrower expects to retire in only five years, he or she should borrow half as much as would be considered reasonable with 10 or more years remaining until retirement.

Sometimes, though, a retiree does not have enough money to pay off all his or her student loans. Borrowers on fixed income may also be concerned that paying off the loans will too great an impact on their cash flow. In such a circumstance, the borrower might try to stretch out the loan term as long as possible, to reduce the monthly payments. This will reduce the impact of the student loan payments on the borrower’s budget. Extended repayment or one of the repayment plans based on income usually result in the lowest monthly payments. Although increasing the repayment term will increase the total interest paid over the life of the loans, the total cost might be lower if the debt outlives the borrower and is cancelled upon the borrower’s death.