College was hard. Paying off the debt is even harder. How to avoid these common pitfalls.

Tackling student debt isn't just a challenge for the young: One in five people with student debt is 50 or older, according to the U.S. Department of Education.Opens in a new window And student debt has become such a problem for younger people that many retirees and soon-to-be retirees want to help their children or grandchildren pay their loans.

While helping to cover family education costs is a laudable goal, you must do it in a way that doesn't set back your own retirement. And even though sweeping policies aimed at reducing student debt could be struck down by the courts, there are a handful of other programs that may be able to help.

Mitigating generational debt

It's no secret that college tuition has soared in recent decades and that more students need to borrow to earn their degrees. According to the U.S. Department of Education, more than 44 million Americans carry federal student loans, up from 28 million in 2007; and more than half of current borrowers must repay at least $10,000 in federal loans. The effects of carrying debt are social as well as economic: Many adults say they delay life milestonesOpens in a new window due to balances on student loans.

Before deciding to help a family member pay down debt, ensure that you're debt-free yourself. Run the numbers with your financial advisor to be sure your fixed expenses are covered, and you'll still have ample cushion for open-ended expenses, such as long-term care. Don't feel guilty about prioritizing your own savings over helping a loved one.

"Student loan borrowers have options for paying down the debt they have, and they have many more years of earnings ahead of them," says TIAA Wealth Management Advisor Melody Evans. "In retirement, either you have money to support yourself, or you're figuring out a way to live off Social Security alone. So be careful with spending that money before you know you can do without it."

Giving wisely

If it's feasible to write a check to help family members pay student debt, avoid withdrawing the funds from retirement accounts. Those withdrawals get added to your taxable income, which means you could end up paying higher income taxes, and potentially higher Medicare premiums as a result. Plus, you'll miss out on future tax-deferred appreciation. "Whenever possible, pull the money from non-retirement accounts," Evans says.

Gift taxes are less of an issue. You can give up to $17,000 in 2023 to any person per year ($34,000 for married couples) without needing to file with the IRS. Gifts above these limits must be reported on IRS Form 709Opens in a new window but do not trigger the hefty federal gift tax, so long as the amount of money you give away over the course of your lifetime stays under a certain threshold (currently just over $12 million, but this is scheduled to drop on the last day of 2025). Tuition payments made directly to the school are not considered gifts and aren't subject to these conditions.

Getting ahead of the ball

To help students avoid debt in the first place, financial advisors recommend regular giving to a 529 college savings plan that can defray future education costs. Thirty-five states offer income tax deductions for money contributed to a 529 plan, and you won't owe any tax as the account grows. Withdrawals used to pay qualified educational expenses are tax-free. Grandparents and other family and friends can set up and make gifts to a 529 plan.

Evans says she frequently talks to clients who express reticence about putting too much money into a 529: "I'm encouraging clients to do more 529 saving to get the benefit of compounding." You can throttle back contributions later, and there are a growing number of ways to use that leftover 529 money, she says. Books and room and board, for instance, can be considered qualified expenses. And any unused money can be rolled into an account for another beneficiary.

New flexibility for 529 plans

Starting next year, it will be possible to roll as much as $35,000 from a 529 into a Roth IRA for the same beneficiary. The 529 plan must have been open for at least 15 years, and the amount moved into a Roth each year cannot exceed the annual Roth contribution limits, though there will not be any income limits.

This new provision is thanks to the Secure Act 2.0, passed at the end of 2022. An earlier law, Secure Act 1.0, passed in 2019, made it possible to withdraw up to $10,000 from a 529 plan to repay student loans. The law also allowed an additional $10,000 to be used to repay student debt owed by each of the beneficiary's siblings.

The outlook for student debt relief

Since March 2020, payments and interest on most federal student loans have been paused. The Biden administration also unveiled a one-time student loan debt forgiveness plan in August 2022 that would provide as much as $20,000 in relief per person, depending on the borrower's income and whether they received a Pell Grant. Some 26 million people have applied for the program, according to the White House.

The Biden executive action on debt relief faces a U.S. Supreme Court challenge, with a ruling expected this summer, says Jill Brown, TIAA Director of Federal Government Relations. Several justices raised questions about the fairness of reducing debt for only certain people, and it's highly uncertain whether the plan will come into effect, Brown says. What's more, the White House is wrestling with the timing of when student loan payments must be resumed, and the high court ruling will likely be a factor.