5 things seniors should know about student loans

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If you’re retired and have student loan debt, you have lots of company.

Two senators have introduced a bill to protect Social Security benefits being garnished to pay off student loans. But don’t count on Congress to provide much help — the Protection of Social Security Benefits Restoration Act is a long way from passing, if it ever does.

If you claim Social Security benefits, you may also face the possibility of giving up a portion of each check to loan repayment.

Here are five things to know if you’re among the many seniors with unpaid student loans:

1. The type of loan you have

Are the loans from a private institution or through a federal program? There are stark differences between the two. Private lenders may offer fewer options for repayment help than federal student loans.

If your loan is a government loan — the most common type of student loan, according to the CFPB — you might have access to strategies that adjust your monthly payment, such as consolidation programs.

Federal student loans typically have names like Direct Loan, PLUS, Perkins or Stafford.

Private lenders include banks, credit unions, state student loan agencies, and colleges or universities. Look for names such as “institutional” or “alternative” loans.

If you’re wondering how long it’ll take to pay off your loans, check out this online calculator.

2. Your Social Security benefits could be garnished

When your student loan is from the government, your Social Security checks can be slimmed by up to 15 percent to repay the debt.

Private lenders are generally not allowed to garnish Social Security benefits when you cosign a student loan for a child or grandchild.

Consider a low-risk money market account to keep your savings balances healthy.

3. Your income might lower your payments

You can still apply for one of four repayment plans that can lower your monthly payment based on your income — that is, provided you have a government loan. These plans reset your monthly student loan payment so it’s more in line with your income and family size.

Even if you’re juggling loan payments, it’s critical to maintain at least a couple of months’ expenses in a savings account for ready cash.

4. You might qualify for loan discharge

You might be eligible for a complete discharge of your federal student loans if you’re on permanent disability. It’s up to the lender to discharge loan debt for private student loan borrowers who face long-term disability. No standard exists the way it does for federal student loans.

If you’re able to get the loan discharged, treat that amount as a fixed expense you still have to make — and stash it in a high-yield CD account.

5. It’s tough to get released from cosigner responsibility

If a child or grandchild is paying off the loan, you might not know the balance or the account status. In fact, even if you’re not the primary loan borrower, you can request access to account information as the consigner on a private loan.

The CFPB says you’re unlikely to be released from your cosigner responsibility. Lenders and loan servicers have different policies. The websites and prospective paperwork of these lenders can give more information.

A mere 10 percent of private student loan cosigners who applied were granted release, according to the CFPB. If you’re considering cosigning, definitely contact the lender in advance to get clear information about the company’s policy on releasing cosigners. The CFPB has a set of sample letters you can use.

Advice of the week: Don’t fall for ‘Grandparent Scam’

Ever heard of the “Grandparent Scam”?

You get a phone call from someone claiming to be a family member who’s in serious trouble and needs money immediately. The scammer might say he is stranded or has been mugged. Sometimes the call comes in the middle of the night, which makes it all the more urgent and confusing.

Once the money is sent — Western Union is a common method — you later find out it wasn’t your grandchild at all.

Four tips can help avoid being scammed this way:

  1. Confirm it’s really a family member. Verify by calling them back on a phone number you know is theirs. Call another family member before you do anything that involves money transfers or a bank.
  2. Ask questions. Fraudsters want this to go quickly. They count on your fear and concern for your loved one to make you act before you think things through clearly. Asking for more detail slows them down and makes them more inclined to ditch the scam when they suspect you are on to their scheme.
  3. Don’t share personal info. Never give personal information by phone to anyone, unless you made the call to someone you know well and trust completely.
  4. Don’t rush into a financial decision. Trust your gut. If something doesn’t feel right, it may not be right. Feel free to say no and get more information before you send money.

IRA vs. HSA: Which is better?

A reader recently asked about the pros and cons of Roth IRAs and the health savings accounts, and how these accounts work. Want answers to your money questions? Join Bankrate’s Money Masters group on Facebook.

The savvy members of Money Masters made some key points:

  • These accounts serve different purposes (retirement savings vs. medical spending).
  • HSAs are available only when you have a high-deductible health insurance plan.

Both accounts have these features in common:

  • Your contributions are tax-free.
  • The growth of your contributions is non-taxable.

And HSA withdrawals — if you use them for qualified medical expenses — are tax-free In retirement. If you have access to an HSA because of your health insurance plan, it’s a good way to build money for your health care costs in retirement.

Another way to build money: Try a high-yield CD account.

Join us at Money Masters, so you can ask questions and get personalized advice from some of the sharpest minds in personal finance.

Follow me on Twitter: @jill_cornfield

Jill Cornfield

I'm a reporter at Bankrate, talking retirement – my own as well as yours. Sign up for my free newsletter.