Student loan repayment can be a huge challenge. Living on Social Security can be a huge challenge. Living on Social Security AND repaying student loans might appear to be impossible.
Fortunately, it’s not as impossible as it seems.
The key to success lies in utilizing programs designed to ease the burden, such as income-driven repayment plans and student loan forgiveness. These programs are specifically tailored to provide relief for borrowers, including those depending on Social Security. For many recipients of Social Security benefits, these programs can reduce their student loan payments to zero, effectively eliminating the financial strain of monthly loan payments. This can make a substantial difference, allowing borrowers to manage their finances more comfortably.
Income-Driven Repayment Plans for Federal Student Loan Borrowers on Social Security
At first glance, Income-Driven Repayment (IDR) plans might appear confusing due to the variety of options available.
The list of IDR plans is long. Borrowers can sign up for Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving for A Valuable Education (SAVE).
While there are some subtle but important differences between the various IDR plans, the basic premise is the same. Borrowers on IDR plans only have to pay a small percentage of their monthly income towards federal student loans. These plans are all designed so that federal student loan borrowers do not have to decide between paying the electric bill or defaulting on a student loan.
The government accomplishes this goal of student loan affordability by determining a borrower’s discretionary income. Monthly payments are between 10% to 20% of a borrower’s monthly discretionary income, depending upon the IDR plan selected. (More details on IDR plan selection and strategy can be found here.)
For Social Security recipients, these plans often result in very low or even $0 monthly payments.
As a general rule, individuals and couples whose only source of income is Social Security probably will qualify for $0 per month payments. Those with additional income sources like pensions or a 401(k) may have higher payments.
A Special Note for Borrowers with Parent PLUS Loans: Parent PLUS loans are not eligible for any of the income-driven repayment plans. However, borrowers can consolidate them to gain eligibility. This article on Parent PLUS Loan Repayment for Borrowers on Social Security explains the process.
Does Social Security Income Affect IDR Student Loan Payments?
The short answer is maybe. Some borrowers will qualify for $0 payments, but others will have larger student loan bills because of their Social Security income.
The slightly more complicated answer: If your Social Security is considered to be taxable income by the IRS, it will impact monthly payments on an IDR plan. If your Social Security isn’t taxed, it won’t affect monthly payments on IDR plans.
Getting more exact will require doing some calculations.
Calculating IDR Payments for Borrowers on Social Security
The key figure used for calculating IDR plan monthly payment amounts is the Adjusted Gross Income (AGI). With the AGI amount from your most recent tax return, any borrower can use the Department of Education’s Loan Simulator to estimate monthly payments. The loan simulator provides a preview of what you might expect to pay each month under each available federal repayment plan.
Borrowers who are planning for their retirement may have to do a little more math.
Typically, taxpayers determine their AGI by summing up all gross income and then subtracting allowable deductions. However, Social Security income is treated differently for tax purposes. Depending on your overall income and tax filing status, anywhere from 0% to 85% of Social Security benefits may be considered taxable and included in your AGI.
The Social Security Administration has a nice summary of how Social Security benefits are taxed. Those who want to generate exact numbers will need to use the IRS Publication 915 to calculate the Social Security that is considered taxable income.
If none of your Social Security benefits are taxable, your IDR payments will likely be $0 per month. As the taxability of your Social Security income increases, so too will your IDR payments.
By understanding how much of your Social Security is taxable, you can use the Loan Simulator more effectively to forecast your monthly IDR payments. This planning is crucial for managing student loans efficiently while on a fixed income in retirement.
Federal Loan Forgiveness and Debt Elimination
Monthly payments only tell part of the student loan repayment story.
For many borrowers, these monthly payments are smaller than the amount of interest that the loan accrues each month. This raises a crucial question. If the loan balance is growing, how will the debt ever be eliminated?
Seniors living on Social Security and making small federal student loan payments will see likely see their debt eliminated in one of two ways.
- Student Loan Forgiveness – Borrowers on income-driven repayment plans qualify for student loan forgiveness after 20 to 25 years, depending upon their repayment plan.
- Death – If a federal student loan borrower dies, their student debt is forgiven in full. The estate will not receive a bill, and the federal government will not try to collect from an inheritance left behind or life insurance proceeds.
Thus, many Social Security beneficiaries may never have to make another student loan payment. They will have to stay enrolled in income-driven repayment, however, which requires yearly income certification. These borrowers will eventually qualify for forgiveness.
Digging Deeper: Learn how to manage student debt during your retirement.
Private Student Loan Options for Borrowers on Social Security
Private student loans offer much less flexibility when compared to federal student loans.
The terms for private loans can vary from one lender to the next. The loan contract specifies the terms between the lender and the borrower.
Generally speaking, private lenders have no special programs for borrowers on Social Security.
In most cases, repayment in full will be the only option. Occasionally, refinancing the debt with lenders like Splash or SoFi can help. However, these opportunities are limited to borrowers who can pass a credit check.
Details and tips on refinancing are available here.
Hello,
I delayed collecting by social security till age 70. I’m still working so I can get fully recovered from the long economic impact of the pandemic and what was before that with regards to accumulated high interest debt. But now I have both regular taxable income and social security. How does this impact my IDR?
It all comes down to the AGI on your most recent tax return. If you earn enough regular income, your social security income may also be taxable, which would increase your AGI and your IDR payment.
The lower your AGI, the lower your IDR payment will be.
Hello Michael, thank you for the information above. I have been on an IDR plan since 2011. One loan forgiven last year($10.000) and another that should end in 6 months ($7,500). With the courts are placing borrowers in forbearance, it will be delayed. I am considering switching to an IBR so months would count. Our AGI last year was $17,500 so I am not sure if I would have to pay something each month on IBR. I’m 74 years old and no longer working. I have not paid anything on my previous IDR plan since 2011. Thanks so much Barb
Based on the AGI you have listed, I think you’d qualify for $0 payments on IBR.
The tricky part here is that forgiveness on the IBR plan takes 25 years. There is a version of IBR that takes 20 years, but it is only available to new borrowers.
Hello Michael – Thank you for all of the guidance provided on this site. I followed all the steps you recommended for IDR plan for Social Security recipients. The process worked exactly as you laid it out in your column. It took a bit of persistence to get through the process. However, we have ended up with a payment plan that is within our budget. Thank you again for all of your guidance!
Hi Bill,
Thanks for taking the time to leave such kind words. I’m glad to hear that it worked out so well for you!
MIchael,
I have federal student loans totaling appx, $88,000 for my son’s college education. When the loans originated, I, as his father, signed for them (never thought to have my first wife/his mother to sign off on them nor where the repayment addressed in the divorce settlement.). Anyway, fast forward to today, I have a new wife, loans have been in forbearance. I am retired on SS and a small pension. When loan payment continue, it appears the loan payments will be based on both my income and my new wife’s income. She was not in the picture, nor is it her son when the loans were taken out. We do currently file as married, joint return. Do I have to include my new wife’s income when it comes to determining the monthly payment? Again, the ex wife has no connection to the loans. Thank you.
Hi Don,
It sounds like you have Parent PLUS Loans. If the loans are in your name alone, you are legally obligated to repay the debt. I’d encourage you to check out the steps required to enroll in an IDR plan for your Parent PLUS loans. Sadly, it isn’t as simple as just signing up for an IDR plan.
As for your marriage, your new wife’s income could impact your monthly payments. If you file taxes jointly, the monthly payment is based on your combined income. If you file separately, the monthly payment is based upon your income alone. Filing separately usually lowers your student loan bill, but it can increase your tax bill. As a result there is a lot to consider when you decide whether to file jointly or seperately.
Under a jointly filed tax return, the AGI is used to determine the monthly payment amount. If the parent plus loans are separate loans under husband and wife, the same AGI is used under each spouse. Or is the AGI split based upon the taxable income of each spouse to determine payment amount for each spouse’s different loans?
If not, I understand the only option is filing separate and the related tax consequences.
Thank you for your time and reply.
Thats a tricky one Pat. Before I answer, I want certain I understand exactly what you are asking.
Are you asking about households where the husband and wife both have Parent PLUS loans in their own name? For example, husband has Parent PLUS loans for child one and two, and wife has Parent PLUS loans for child 3 and 4.
Michael,
Yes to your question regarding husband and wife having separate Parent Plus loans. Husband’s loans are for children 1 and 2. Wife’s loan for child 3.
Thank you again for your time and replies.
Regards
Pat
When you both have federal student loans, the benefit to filing seperately drops, but there is still a slight benefit. This article breaks down the details on calculating IDR payments for married couples who both have student laons.
The short answer is that if you file married filing jointly, the Department of Education determines the combined payment that the two of you must pay, and then that payment is split proportionally according to your loan balances.
If you’d like, we can schedule a student loan consultation to discuss whether or not it makes sense to file seperately as well as some strategies to keep your monthly payments as low as possible.
Michael,
Thank you for your reply.
Let me contact the FSA office to determine what the amount of the payment is with the current payment startup. I will try to confirm with them the policy and will get back in touch for the consultation.
Regards,
Pat
Hi Michael, I recently retired in 2022 from working in a school system as an esp.(assistant in kindergarten for over 30 years.) I have a parent loan out for my daughter when she first went to college in 2006. I have been on deferment at times and for years have been on income sensitive .it’s time to fill out paperwork again for the income sensitive but I am hearing that it is not or will not be in the forgiveness of the Biden administration, should I go on the income repayment plan?? My income has dropped significantly I am on Social Security and I have a small pension. I was hoping I would get some forgiveness. What are my options and will I ever be forgiven for this loan? Thank you so much.
Hi Cynthia,
It doesn’t look like Parent PLUS loans will qualify for the one-time forgiveness program. However, at this point, there is a lot we don’t know. The Supreme Court is hearing the case later this week, and the rules could change. I’d be shocked if it eventually included Parent PLUS borrowers, but nothing is certain.
One option for forgiveness would be repayment on an Income-Driven Repayment plans. I’ve previously written an article just for Parent PLUS loan borrowers who are living on social security. It should cover the details you are looking for.
Best of luck to you!
Hello Michael,
My original loan was $9,000.00 from a technical college 35 years ago. Due to a back injury I was never able to pay it back, I’m 65 years old now and I will be collecting SSI next year. Do I still have to pay it back?
Hi Sean,
To help with your question, I’d need a bit more information. For starters, was this original loan federal or private?
It was Federal.
In that case, there is a good chance that you won’t have to pay it back. The one-time forgiveness program is set to be decided by the Supreme Court this year. If the Biden administration wins, that will erase $10,000 or $20,000 of federal debt per borrower.
Additionally, they are conducting a one-time audit to update IDR payment counts. Given the age of your loan, it is possible that you may already qualify for IDR forgiveness. I’d suggest contacting your servicer to discuss whether or not you have alredy earned forgiveness under this program.
Plus, if you are going to live off of your social security income, you can use the methods described at the top of this page to eventually earn forgiveness.
If your income is social security and you are paying medicare part B, can you consider that as health insurance deducted from you check? The questions in the loan simulators do not make calculating easy with SS in the mix.
Hi Donna,
Some of those simulators are more accurate than others. You are probably safe counting Medicare Part B as health insurance. However, I should point out that the really important number is the AGI on your most recent tax return. If you are living on social security, your AGI might be lower than what these calculators estimate, which means your monthly payment could be even lower than what the simulator reports.
I have been on a non-payment status for years with regard to my student loans, due to very low Social Security. I did, however, receive an inheritance last year, which isn’t huge, but has been so helpful with alternative cancer treatments, which are keeping me in remission much better than chemo did. I depend on this money but am worried that the loan people will expect me to use that money for my loan payments. When I fill out the forms, they will see the money in my bank account and on my tax returns. I will owe $61,000 after the $10,000 is cancelled, per the new decision.
Hi Pam,
If by non-payment status, you mean you were on an IDR plan making $0 per month payments, the inheritance should not impact your monthly student loan payment.
Hi Michael, yes, but I was on IBR making $o payments per month.
I assume this is the same situation as IDR?
Thank you for your quick response. This has been weighing heavily and I couldn’t find this info anywhere else. I appreciate you and the site.
I should have been more clear with my response. IDR stands for income-driven repayment, it describes a category of repayment plans. The IDR plans include IBR, PAYE and REPAYE. Everything I said about IDR applies to the IBR plan.
This is very misleading. No Where does any intity state the loan doesn’t have to be replaced. Even if the loan is paid on with an IDR plan for 25 yrs and is so called forgiven. Bahaha it’s actually worse. The loan amount was just the tip of the ugly iceberg! Now that it’s forgiven the nice people up in Congress have fixed it so it’s now considered income! And now you owe a rediculous amount of fed income taxes that no one in the financial bracket of one of these borrowers would EVER be able to pay. Bull shit lies from start to finish.
Hi Connie,
You are right about the tax on forgiven debt being unfair to borrowers. Fortunately, recently passed legislation eliminated this tax bill until at least 2026. If you are interested in hearing more about it, this article explains why the tax bill is unfair, and why it is unlikely to come back.