I’m 66 and retired, but I owe $70,000 in student loans. Can I cancel them?
Question: I am 66 years old, I am retired and I have a student debt of $70,000. I am currently on an income-based repayment plan, but my loans are being transferred to another loan servicing agency. My loan payments have been $0 per month because my social security is too low to justify the payments. Is there a way to cancel this debt? I don’t think I will live long enough to repay these loans.
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To respond: This question “goes to the heart” of why seniors are asking the Biden administration “What about us?” about student loan relief, says Andrew Pentis, Loan Expert and Certified Student Loan Counselor at StudentLoanHero. The administration has “been really great about targeted student loan forgiveness programs” for groups like veterans and people with disabilities, he adds, but for older borrowers, not so much. . That said, the pros have a few suggestions for you.
In your particular case, student loan experts agree on several fronts about this situation: a) There is no magic formula for canceling debt; b) the awareness of the recent shuffling of loan managers exiting and entering the industry is commendable – some borrowers are not as up to date; and c) staying on the current income-based repayment course is a good plan based on the facts you have provided.
While your debt-to-equity ratio may put a damper on getting additional credit, the upside is that you’re following an income-driven repayment plan to keep the monthly bill down. There are four income-oriented repayment plans, and they’re designed to keep monthly payments affordable relative to income.
As payments are made – in your case $0, but it could be another amount in other situations – for 20 or 25 years, depending on which IDR plan you are enrolled in, the remaining balance will be forgiven.
The income in your case is unlikely to change since the source is your Social Security benefit, and the monthly payments should also remain static. As long as you continue to make the $0 monthly payment, your credit score should only go up. The loan will stay current, and you don’t have to worry about missing a payment and the negative consequences of default.
There is a possible caveat. There has always been income tax imposed on canceled student loan debt, but Congress recently made cancellation tax-exempt until 2025 at the federal level. Assuming this isn’t extended and you receive loan relief after that date, you could have a big tax bill on your hands.
Note, however, that programs change – and change again. “There is always the possibility that loan forgiveness will no longer be considered taxable income under income-based repayment,” says Anna Helhoski, student loan expert at NerdWallet. Given your limited income, you could probably work out some sort of reimbursement agreement with the IRS.
It’s also important to note that according to Leslie Tayne, founder and managing director of Tayne Law Group, bankruptcy is probably not an option here because it doesn’t appear that a physical disability makes the job impossible.
While maintaining your current repayment strategy, consider these household chores. Contact your new federal loan officer to confirm that your account is in order and that “there were no problems with the transfer,” Pentis says. Make sure you are still eligible for your IDR plan and are up to date, and verify that you are credited with your $0 payments (annualcreditreport.com) as errors occur.
As for your life expectancy end point: the tax wise men are in tune on mortality and liability. If you are the primary borrower of a federal student loan and you die, the debt will be discharged.