Student Loan Debt, Social Security, and Retirement.

If you are in college or recently graduated, retirement is probably the last thing on your mind. Securing a well-paying career and funding your lifestyle should be a priority. However, if you took out student loans, like millions of other people, you may want to start thinking about the future before becoming a victim of debt. 

What is Social Security?

After the Great Depression, President Roosevelt signed the Social Security Act (SSA) to ensure the economic security of the nation’s people. Social Security is a federal program in the U.S. that provides retirement benefits and disability income to qualified people and their spouses, children, and survivors. A percentage of every taxpayer’s paycheck is taken to fund Social Security. To qualify for Social Security retirement benefits, workers must be at least 62 years old and have paid into the system for ten years or more.

What happens if I retire with student loan debt?

Although Social Security intends to support you in retirement, Social Security automatically takes a percentage from your earnings to pay that debt if you enter retirement with a defaulted loan. The government doesn’t have to wait until retirement to act. Failing to make a payment on a federal loan for 270 days results in default, which leads to some significant consequences, including losing eligibility for other federal repayment plans, fee increases on future payments, and a damaged credit score. After default, the government can garnish your wages.

Wage Garnishment

According to the United States Department of Labor, “Wage garnishment is a legal procedure in which a person’s earnings are required by court order to be withheld by an employer for the payment of a debt.” The government cannot take more than 15% of your Social Security payment, and you must be left with no less than $750 a month in benefits.

Areas of Consideration

Most older adults that enter retirement with student loans did not take on that debt for their own education. Parents and grandparents commonly co-sign or take out Parent PLUS loans to help pay for their child’s school. If their child fails in making on-time payments, the co-signer is in just as much trouble. According to the American Association of Retired Persons (AARP), for 1 in 4 seniors, Social Security is 90 percent of their income. If you must continue making payments in retirement, whether on your loans or those of a dependent, it could consume a lot of your income.

What to do Now

To avoid the consequences of student loan debt in retirement, make payments on time and in full. Choosing a payment plan that suits you is the first step. Income-driven repayment plans are better if federal student loans are higher than income. Revised Pay As You Earn (REPAYE) Repayment, Pay As You Earn (PAYE), and Income-Based Repayment (IBR) base payments on income and family size and are recalculated every year, adjusting to changes. 

The payments are often more affordable because they are income-based and will not exceed 10 to 15 percent of usable income, and monthly payments will be less than the standard or graduated plans. Each of these plans lasts for 20-25 years. Start saving! A 2019 AARP analysis suggested that “borrowers who wait to start saving for retirement due to their student loan debt will need to work two to seven years longer to achieve the same account balances as their peers without debt.”