One of the fastest growing segments of student loan borrowers is senior citizens. Most of this growth is due to Parents who signed up for Parent PLUS loans for their children who have not yet paid off the debt.
This has caused a major problem in many households. Some face huge bills and are forced to make major sacrifices. Others, despite there best efforts, find their social security checks garnished due to student loans.
The good news for student loan borrowers living on social security is that if they take the right steps, odds are pretty good that they may never have to make a student loan payment again.
Income-Driven Repayment Plans
One of the major advantages to having federal student loans is the option to apply for an income-driven repayment (IDR) plan. The significance of an IDR plan is that it allows borrowers to make payments based upon what they can afford rather than what they owe. Thanks to the help of IDR plans, many borrowers are able to get monthly payment plans of $0 per month.
These IDR calculations are done by determining a borrower’s discretionary income. The more a borrower makes each month, the more the borrower will be expected to pay.
Without going into the full details on how discretionary income is calculated, borrowers who live on social security and have no other income are likely to be able to qualify for a $0 per month payment.
The catch with Parent PLUS loans is that they are not actually eligible for any of the federal income driven repayment plans. The good news is that by going through federal direct consolidation, the loans can be converted into eligible loans. Once the loan or loans have been consolidated, Parent PLUS loans than become eligible for the income-contingent repayment (ICR) plan.
ICR is not the best of the income-driven repayment plans, but it is the only one that can be used with Parent PLUS loans. The good news is that ICR is a plan that is eligible for $0 per month payments… as long as the Parent PLUS loans have first been consolidated.
Federal Direct Consolidation
We will skip the history lesson on federal student loans that explains why federal direct consolidation is a necessary step for the ICR plan. This extra step is government red tape at its worst, but the good news is that the consolidation process is pretty simple.
The Direct Consolidation Loan can accessed through the Department of Education’s student loan website. According to the Department of Education, it takes about 30 minutes to complete the application.
They do a nice job explaining how multiple loans can be combined into one and that there is no cost to the process, but a couple important details are not mentioned:
- If you have just a single Parent PLUS loan, you are able to consolidate the loan.
- Do not consolidate Parent PLUS loans with other federal student loans – the other federal loans lose their eligibility for certain repayment plans if they get combined with a Parent PLUS loan.
There have been services that have popped up over the years that offer to help borrowers go through the consolidation process and get $0 per month payments. These “services” are usually shut down fairly quickly by the government as they amount to little more than a scam. Borrowers need not pay for outside help to consolidate and enroll in an income-driven repayment plan.
Three Steps for $0 Student Loan Payments for Social Security Recipients with Parent PLUS Loans
Step #1: Apply to for federal direct consolidation.
Vist the direct consolidation website, and fill out the form. Be sure that Parent PLUS loans do not get combined with other federal student loans (if you also have loans that were used in your education). If you get confused or need help, contact your federal student loan servicer for guidance.
Step #2: Sign up for an Income-Driven Repayment (IDR) Plan
For borrowers with Parent PLUS loans, the only IDR plan that they will be eligible for is ICR. The IDR request can also be completed on the Studentloans.gov website. The easiest way to verify your income is to have them automatically pull your most recent tax return. However, if your income has dropped since your last tax return, you may have to go through the steps to submit alternative documentation.
Step #3: Certify income on a yearly basis
Your student loan servicer should remind you each year, but it is important to certify your income yearly. This will keep payments low and manageable… for many that can mean $0 per month. If the monthly payment suddenly jumps up, it is likely because you missed a certification deadline. If that happens, simply complete the IDR request again.
How does the loan get paid off?
If you are making $0 per month payments, the loan balance will only grow. Though unfortunate, it is the only option for many senior citizens on a fixed income.
There are provisions to have the loans forgiven after 25 years, but the reality for many seniors is that they will just certify their income on a yearly basis and never make any payments on the loan.
Estate Planning Concerns
Those who worry that the government will collect the debt after they die do not have to worry. One feature of all federal student loans is that the debt dies with the borrower. Even if you still money on the student loan when you die, it will not be taken out of life insurance proceeds or any inheritance left for your kids or for charity. The process for a death discharge is fairly simple and can be completed by surviving relatives or your representative.
The steps required for Social Security recipients to ensure their checks don’t get garnished is probably more complicated than it needs to be. Fortunately, setting aside a bit of time to jump through some government red tape is all that is necessary to protect your social security.
To make sure that steps doesn’t get missed, it is a good idea to have your child remind you of deadlines and help you with the paperwork… given that you took out the loan to pay for their school, it is the least they can do.