Student Loan Debt Is an Unheralded Burden for Older Borrowers
Americans 50 and over owe hundreds of billions for themselves, children
En español | The student loan debt crisis is not just a problem for the young. Of the $1.6 trillion in total student debt at the end of 2020, borrowers 50 and older owed about 22 percent of that amount, or $336.1 billion — more than a five-fold increase from 2004.
The crisis has been hard on older households. In 1989, 3.1 percent of families headed by someone age 50-plus carried student loan debt, owing an average of $10,073. By 2016, 9.6 percent of families headed by someone age 50-plus carried student loan debt, with the average amount owed more than tripling to $33,053. The federal government now offers up to $20,000 in student loan forgiveness.
The combination of stagnant wages and soaring tuition prices is a major reason student debt has become such a burden. “Over the past three decades, the cost of attending a four-year college has more than doubled, even after adjusting for inflation, as state and local funding for higher education per student has decreased,” said AARP CEO Jo Ann Jenkins in 2019. “Family incomes haven’t come close to matching that increase.”
Most older Americans took on debt because they wanted to burnish their skills and get a promotion or higher pay. Others decided to go back to school so they could change their careers. And still others are on the hook for loans that pay for their children's education, either by taking out PLUS loans — federal money borrowed by parents — or cosigning for other debt from private lenders. About 25 percent of borrowers age 50 or older make loan payments on private student loans because the student failed to do so.
The median student loan payment — half are higher, half are lower — is $222 a month, according to the Federal Reserve. The average payment is $393.
While this may seem a reasonable amount for a loan payment, it can be especially burdensome to lower-income borrowers, who often struggle with making student loan payments. For retirees, it can be a particularly difficult problem. The average Social Security retirement benefit is $1,543 per month: For 1 in 4 seniors, Social Security is 90 percent of their income.
Student loans, unlike most other forms of debt, generally cannot be discharged in bankruptcy, and the government can garnish your wages, as well as up to 15 percent of your Social Security benefits, for repayment of federal student loans. In fiscal year 2015 alone, almost 114,000 borrowers age 50 and older had Social Security benefits seized to repay defaulted federal student loans, according to a 2016 Government Accountability Office report. Half of those were receiving Social Security disability payments.
Student loan payments can also squeeze retirement savings, says the Employee Benefit Research Institute (EBRI), particularly for those who took out loans but did not finish college. “These families end up with the costs, but not the benefits of attending college,” said Craig Copeland, EBRI Senior Research Associate, in a press release. A 2019 AARP analysis suggested that borrowers who wait to start saving for retirement due to their student loan debt will need to work two to seven years longer to achieve the same account balances as their peers without debt.
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In search of solutions
Because of the pandemic, the federal government has put all student loans that it owns in forbearance through 60 days after June 30, 2023. (The suspension could also end a bit earlier if litigation over student debt forgiveness has been settled.) You’ll still owe the money, but interest and penalties will not accrue on these loans, which make up about 4 out of 5 student loan dollars owed.
Some corporations, such as Aetna, Fidelity Investments, Estée Lauder and Penguin Random House, have begun to offer student loan repayment assistance as a benefit. Companies with these offerings make regular payments on the debt, up to a specified limit. At the moment, just 4 percent of corporations offer a debt repayment option for employees, although given the current COVID-19-hobbled economy, those programs could experience slow growth. Other companies offer slightly different plans.
Some borrowers have found relief with income-based repayment plans, which cap payments according to your income. While these increase the repayment period, after a set period of time — 10 years for borrowers in some public service careers, and 20 or 25 years for all others — any remaining balance is forgiven. Other solutions, such as federally mandated student loan forgiveness, are also on the table.
The consequences of defaulting on student loans can haunt you for years. If you're struggling to make payments, talk to your lender, weigh your options and see what solution works best for you. One free source: the Department of Education's online loan management tool.
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today, and has written books on investing and the 1998 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.