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How older Americans can cut student debt

Student loan debt is not only a financial burden facing millennials. It's a bigand growingproblem for many older Americans who are near or in retirement.

Student loan balances among borrowers in their 50s or older made up 17 percentor about $204 billionof the nearly $1.2 trillion in outstanding student loan debt in the U.S. last year, according to researchers at the New York Fed.

And while student loan balances have grown substantially for borrowers of all ages in the past decade, researchers say the fastest growth has been in total balances held by borrowers age 60 or older, which have increased nearly nine-fold since 2004.

"Student loan debt owed by older Americans includes debt borrowed or co-signed to help a child or grandchild pay for college as well as student loans for the borrower's own education," said Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a college financial planning website. In financing their own education, "most of this debt is more recent...student loans borrowed when returning to college to finish an undergraduate degree, to switch to a new occupation or to obtain a graduate degree."

Older borrowers are also more likely to have defaulted on loans (meaning they fell behind or failed to make payments), and many incorrectly believe their balances can be discharged in bankruptcy. "Student loans are cancelled when a borrower dies, not when the borrower retires," reminds Kantrowitz.

In the fourth quarter of 2014, the average student loan balance for all borrowers was $26,700. If you're still carrying student loan debt as you approach retirement, here's what you need to do:

Don't default on your loan

Make your payments on time. If your loan goes into default, the government can garnish your wages, withhold your tax refund and even take a portion of your Social Security benefits.

From 2002 through 2013, the number of Americans whose Social Security benefits were offset to pay student loan debt increased five-fold from about 31,000 to 155,000, according to the U.S. Government Accountability Office. Among those 65 and older, those whose benefits were offset grew from about 6,000 to about 36,000 over the same period.

Student loan borrowers who graduate, don't postpone payments, track their progress, and communicate with their servicer increase their chances of successful repayment, according to an analysis by Navient, a loan management and servicing company.

Explore income-driven repayment plans

If you qualify for an income-driven repayment plan, you can lower monthly payments on federal student loans, which may help keep you from going into default. You'll make payments based on 10 to 20 percent of your discretionary income. Any remaining balances on your federal loans will be forgiven after 20 to 25 years as long as you've made your payments on time. Go to the U.S. Department of Education's website to find out more about the three income-driven repayment plans ("Pay As You Earn", income-based, and income-contingent) for federal student loans.

Stretching out the term of your loan as long as possible through extended payments or income-based repayment can help to reduce the monthly payment to a more affordable level and improve cash flow, though keep in mind that you could end up paying more in interest over the lifetime of the loan.

Consider consolidation or refinancing options

Parents who took out federal PLUS loans for a child or a grandchild may be eligible for income-contingent plans, if the loan is consolidated. But, unfortunately, private student loansincluding loans parents co-signed for their kidsare not eligible for income-driven repayment plans. For those, try to negotiate a lower payment with the lender.

Refinancing student loans may also help borrowers with excellent credit find lower interest rates.

"Refinancing all or some of those loans enables borrowers to receive a new loan at one interest rate that, depending on the borrower's circumstances, tends to be lower than what they were paying previously," said David Klein, CEO and co-founder of CommonBond, a startup student lending platform that refinances existing graduate student debt. "Many people just aren't aware of the refinance options out there."

Bottom line: Investigate all of your repayment optionsand cut other expenses tooso you can get rid of that student loan debt before you retire.