Much has been made of the financial pressure young college grads face due to their student loans. Surprisingly, however, the fastest-growing segment of people with burdensome school debt isn’t the young. It’s borrowers far removed from their college days: those age 60+.
In many cases, the education debt held by older borrowers was for their own schooling. Typically, they ran into trouble making their payments and sought relief either through forbearance or an income-based repayment plan.
Forbearance delays the need to make payments during a financial hardship, but adds to the loan balance because interest continues to accrue. (In December, the Education Department announced that millions of borrowers still under a Biden administration “SAVE” forbearance program must resume making payments soon.)
Income-based repayment plans lower the required monthly payment amount but can stretch payoff terms well past the typical 10 years.
Other older borrowers took out Parent PLUS loans for the benefit of their kids—loans that are relatively easy to qualify for. Or they co-signed for a private or grad school loan, and the beneficiary stopped making payments.
The senior squeeze
Between 2004 and 2021, the number of individuals age 60 or older with student-loan debt increased sixfold to 3.5 million, according to the Federal Reserve Bank of New York. The 60-plus demographic now makes up 8.3% of all student-loan borrowers—up from just 2.7% about 15 years ago. The burden borne by these borrowers has grown as well, more than tripling during the same period to an average of more than $37,000.
The government’s Consumer Financial Protection Bureau, an agency that monitors this issue, believes such figures may underestimate the education-related debt burden facing older adults. In addition to taking on school loans, many older Americans paid for college with home-equity loans, credit cards, and other types of loans. Compounding the problem, many have mortgages and vehicle loans.
One out of every three older student loan borrowers is in default—the highest percentage among any age group with education debt. This leaves them vulnerable to the possibility that wages or Social Security payments could be garnished or income tax refunds seized.
Older people with student loans are more likely than those without such debt to report skippping necessary healthcare, such as doctor’s visits, dental care, and filling prescriptions for necesary medication.
Solutions for struggling borrowers
It’s far better to face up to a loan obligation than to ignore it. If you have a federal student loan and have difficulty making the payments, contact your loan servicer to explore options. If your loan is in default, consider loan rehabilitation or consolidation.
Rehabilitation.
With this option, after you make nine monthly payments (possibly at a reduced payment amount), your loan will be considered rehabilitated, and you will become eligible to have any garnishment of Social Security benefits stopped. Additionally, the default record on your student loan will be removed from your credit history.Consolidation.
While it might sound like an oxymoron, you can consolidate even a single loan. You would be paying off the loan that was in default while taking on a new one. Although the accrued interest from the previous loan will be added to the new loan, your monthly payment might be lower because it will be based on your current income. Once your loan is consolidated, Social Security benefits will no longer be subject to garnishment.
If you have a student loan from a private lender, contact that lender, explain your situation, and find out what options may be available.
Protective measures
For parents who haven’t borrowed yet to help their kids pay for college, consider the following:
Prioritize saving for your retirement over paying your kids’ college costs. If necessary, your children can borrow. Remember that your children probably have many working years ahead of them and the prospect of a rising income. Depending on how close you are to retirement, you likely don’t have many working years ahead of you, and a healthy portion of your income may be better directed toward building your nest egg.
Do not co-sign. Although most student loans don’t require a co-signer, some do—such as those from private lenders and federal loans for grad school if the student has shaky credit. Our advice? Don’t do it. As difficult as it may be to turn down your own flesh and blood, the Bible warns against co-signing.
“Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you” (Proverbs 22:26-27).
If your child or grandchild doesn’t make the payments, you will be responsible. That introduces a financial risk into your life at a time when you can least afford it.
Other approaches to college costs
In an era when financing the cost of college is the norm, it may be difficult to resist the pull of the culture. However, there are other options worth considering. These include taking a gap year after high school to earn money for college, choosing a less expensive school, working while attending college for an employer that offers tuition reimbursement, exploring one of several military pathways to pay for college, and, of course, evaluating whether college is even the best choice.
In contrast, retirement-funding options are usually much less flexible. It’s unwise to jeopardize your retirement by borrowing to pay for college, especially when many other options exist.
