The Senate failed to vote this week on a bill that would have allowed millions of Americans to refinance their student loans at today’s low rates. Though the bill focuses on providing financial relief to struggling young adults, it turns out millennials aren’t the only ones trying to dig out from crippling mountains of student debt. A growing number of seniors face the same problem.
The amount of student debt held by Americans age 65 and older reached $18.2 billion last year, up from just $2.8 billion in 2005, according to a report out last week from the Government Accountability Office. Even more surprising: More than 80 percent of that debt reflects loans taken for the borrower’s own education, rather than for that of his or her children.
It’s unclear whether those loans are for undergraduate debt taken on during borrowers’ prime education years, or whether they were taken more recently for mid-career training or advanced degrees – data wasn’t available on the age of the loans. Experts suspect it’s the latter, since loans taken decades ago tended to be much smaller.
Financial planners say the increase in older Americans with student loans is impacting those people’s ability to retire as planned. “If you’ve got loan payments, that’s going to impact your quality of life in retirement,” says Fred Armein, a financial planner who’s written a forthcoming book, Financial Aid and Beyond: Secrets to College Affordability.
Senior households are far more likely to have mortgage loans or credit card debt than student loans. But for older people with few assets, student loan debt can be more disruptive than other types because it generally can’t be discharged in bankruptcy.
While those over age 65 hold just one percent of all outstanding student loans, they’re far more likely to be delinquent on them. Among loans held by people ages 25 to 49, 12 percent were in default. That’s compared to 27 percent in default among those ages 65 to 75 and more than half the loans held by individuals age 75 or older.
Here’s something even more shocking: Over 150,000 Americans had a portion of their Social Security garnished last year to pay down their student loans, according to the GAO report.
“As the baby boomers continue moving into requirement, the number of older Americans with defaulted loans will only continue to increase,” the report states. “This creates the potential for an unpleasant surprise for some, as their benefits are offset and they face the possibility of a less secure retirement.”
Back to School
In recent years, a growing number of working adults enrolled in college or graduate school either to gain additional training for career advancement, or to help bolster their credentials after a lay off during the Great Recession. The median loan burden for graduate students in the U.S. jumped almost 50 percent from 2004 through 2012, according to a March study by New America, a Washington-based public policy institute.
Indebtedness rose from about $40,200 to $57,600 during that period, when accounting for inflation and existing undergraduate debt. About 40 percent of government student loans are for graduate degrees.
Just as traditional college students need to determine if the cost of their dream college makes sense relative to the value of their degree, older adults must also decide whether borrowing money to go back to school is a smart investment. The value of a degree for such students is often less, since they have fewer years of employment to reap its benefits.
“Whether you’re borrowing for yourself or borrowing to help your children go to college, you should borrow no more than you can afford to repay in 10 years or by the time you retire, whichever comes first,” says financial aid expert Mark Kantrowitz, who publishes the education resource site Edvisors Network. If you need to borrow more than that, the school may be too expensive.
Those over age 65 have an average of $12,000 in total debt, not much less than the $13,000 average balance among those under age 65. One option for people struggling with loans is to contact loan servicers to see if the loans are eligible for new income-based repayment programs that could lessen monthly payments and help keep borrowers out of default.
Overall, the percentage of older households with student debt remains lower than the percentage with mortgage or credit card debt. Yet experts expect the number of retirees with student debt to continue growing, along with the portion of those who have taken on the additional debt to assist their children.
The administration plans to relax credit restrictions for federal Parent Plus loans next year, and there is no cap on the amount parents can borrow under that program. “I’m concerned that the new guidelines for Plus loans are a ticking time bomb,” says John Hupalo, CEO of Invite Education, which helps families plan for college expenses. “There needs to be a better education for parents.”
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