How soaring student debt threatens a vulnerable set: Americans over 60

The popular idea of what retirement involves, as long as you’re healthy enough to enjoy it, can sound a bit like an extended vacation: golfing, fishing, sitting around drinking iced tea while discussing the latest books with a group of like-minded friends, traveling to visit the grandchildren or places you’ve always yearned to see.

Nowhere in those scenarios is there any mention of writing a monthly check to pay off a student loan.

Here’s a reality check. Over the last 10 years, it is Americans over the age of 60 who have seen their student loan debt grow at the fastest rate of any demographic group, according to data from the Federal Reserve Bank of New York. By 2014 that sum had hit $58bn, up from a mere $6bn in 2004. The increase in borrowers over the age of 40 taking out new student loans was nearly twice the increase in borrowing by their younger counterparts over that period. That’s not great news, because Americans in their 40s, 50s and 60s have much less time to repay those loans and try to save for their other big financial goal – retirement. Senior citizens are ending up retiring while still owing substantial sums in federal student loans. And since those amounts cannot be discharged even in bankruptcy proceedings, the consequences are painful.

Some retired borrowers are finding that the government is looking to the social security payments on which they rely to buy food and pay rent in order to recoup some of that debt.

A report by the nonpartisan Government Accountability Office (GAO) last year calculated that an inability to repay such loans affects about 3% of households headed by someone aged 65 or older. These borrowers had about $18.2bn of student debt on their balance sheets by 2013, up from a relatively paltry $2.8bn in 2005.  The number of retirees who saw their social security benefits garnished to help pay down their student loans soared 500% between 2002 and 2013 – even the limits placed on the extent to which such benefits can be tapped still left those individuals below the poverty rate, the GAO acknowledged.

That rate of growth is alarming enough, even though the GAO described the situation as “affecting the financial security of a small percentage of retirees”. But what we should start to consider immediately is the fact that before long, as more and more baby boomers move into that 65-plus category, there will be even more retirees with student debt payments to make. The data and the trends suggest, too, that there will be more defaults, and more elderly Americans driven to poverty by an inability to either pay this debt or discharge it in bankruptcy, as they can do with virtually any other form of obligation.

The reasons for this are twofold. Firstly, college tuition costs have for many years grown at an annual rate two to three times that of inflation, while the average annual incomes of most Americans have stayed almost steady. In 2012, the average college senior graduated with a debt load of $29,400, 25% more than she would have had four years earlier.

The debt load at a for-profit college grew faster than the average and was higher, at an average of $39,950.

Loans have to fill the gap. But loans available to students have become harder to get, as many private lenders have bowed out of the market. What students can get from the federal government directly doesn’t keep up with the rate at which tuition has risen. The parent Plus program, however, allows their parents or step-parents to borrow the full tuition cost, less the cost of any aid that the student has received.

Imagine a middle-class family with three college-bound kids, each requiring these loans. Now, imagine just what kind of debt burden those parents, as they head into their 60s, will face as they brace for retirement. It is to be hoped that their children will shoulder the burden of repayment, but in the case of Parents Plus loans, the loans aren’t theirs. Indeed, they may well have their own loans to deal with, and be struggling already with those.

Ultimately, the boomers could end up footing the bill for millennial debt.

In a worst-case scenario, some parents have co-signed their children’s student loans and then suffered the pain of that child’s deathonly to discover that they have inherited the responsibility of repaying his or her loans.

Until now, these parent Plus loans have been less of a problem for seniors than the borrower’s own debt, but I wouldn’t care to bet that this state of affairs will persist. At present, most seniors run into trouble with debt they’ve taken out to fund their own education. And here, too, we can expect to see a big increase in the number of seniors retiring with more student loans outstanding, given the lingering impact of the 2008 financial crisis. As the unemployment rate peaked in 2009 at more than 10% – the worst levels recorded since the early 1980s – millions of Americans were desperately searching for jobs. The older they were, the longer they spent without work and the tougher it was to find a new position. For a number of these older unemployed workers, the key to a new job lay in getting new qualifications; in other words, in some form of education. But even a community college degree or a program that ends with a technical certificate costs money. So student loans come into play.

Even then, however, some of those new credentials proved less valuable than their owners had hoped. Some spotted reports of a shortage of nurses and embarked on a four-year training program, only to graduate into a market that suddenly had a surplus of nurses: many others, it seemed, had had the same idea, while nurses who might otherwise have retired had decided to hang on. For anyone who made that late-in-life educational investment, it no longer looked like such a great idea, especially with a limited number of years ahead to repay the loans and try to save for retirement. Clearly, as the data shows this steady, and even dramatic increase in the number of senior citizens on the verge of being driven into acute poverty by student loans, it’s about time for the government to reconsider its policy on whether such loans can be discharged in bankruptcy, as least for this age group.

These aren’t reckless borrowers who racked up massive amounts of credit card debt taking their family on a cruise they couldn’t afford. (The irony is that if that were the case, they could simply file for bankruptcy and get rid of the debt.) They were trying to do the right thing, obtaining an education in order to be able to work and earn, or trying to fund their children’s education. That’s not frivolous spending.

Even if we, as a society, could insist that a 70-year-old who took out a $10,000 loan to retrain as an air-conditioner repairman should live in poverty today, or go back to work doing manual labor with men a third his age, is that the society that we want live in?

We might as well ask ourselves this question now, because if we don’t, the problem, and the loan balances, are only going to loom larger five years from now.

Leave a Reply

8 + one =