The Growing Trend Of Retiree Student Loan Debt

May 22, 2019


By Robert Farrington

By now, you’re probably well aware that student loan debt has become a national crisis. Over 44 million borrowers owe more than $1.5 billion collectively at last count, and the student loan delinquency rate (loans 90+ days rate) remains relatively high at 11.4%. Worse, more than 609,000 souls owe more than $200,000 on their student loans according to the latest reports, and 1.3 million owe between $100,000 and $150,000!

But the bad news doesn’t end there. A large swath of student loan debt is not only ruining the lives of our youth, but our senior citizens in retirement.

You think of college debt as a Millennial’s problem – and it is – but the fastest growing group of borrowers is seniors, according to CBS News correspondent Mark Strassman. For seniors who fall behind, the government will garnish their social security. Many of them face a mountain of student debt they can never pay off. It’ll follow them to their grave, as he highlighted in his recent report.

How Retiree Student Loans Come Into Play

According to a Forbes analysis of Federal Reserve data, student loan debt among consumers in this age group has increased 71.5% over the last five years. This means that, as of the last number-crunching session, seniors ages 60 to 69 owe $85.4 billion in student debt altogether.

You’re probably wondering how this happened, especially considering the standard student loan repayment plan lasts only ten years — and even extended repayment plans typically only last 20 to 30 years. The answer is simple. Like other generations, seniors and baby boomers often choose to go back to school to increase their job prospects or learn new skills. And when they do, they take the path nearly everyone does when they go to college — they take out loans.

Of course, sometimes seniors are left holding the bag when their child or grandchild decides to go to school. This may mean they co-signed on a private student loan for a loved one they wanted to help with college, but it can also mean they took out parent PLUS loans, which come with a fixed interest rate of 7.6%.

The Problem With Growing Student Loan Debt

It’s easy to believe senior student loan debt must not be a problem, but this couldn’t be further from the truth. As a recent report from the AARP noted, seniors can see their Social Security benefits garnished at a rate of 15% to pay off student loans in default. They also note that, in 2015 alone, almost 114,000 student debtors ages 50 and older had some of their Social Security benefits seized to repay overdue federal student loans, which are subject to garnishment. And many of the funds seized were from disability benefits, not Social Security benefits paid out beyond the age of 62.

And, what about retirement? According to a study from Synchrony Bank, Americans in their 60’s report a median retirement account balance of $172,000. That’s not enough to retire for most people, let alone also service student loan debt.

This means more and more seniors are falling into poverty or relying on family members to provide them with housing or basic living expenses. And it may get a lot worse before it gets better.

What Can Seniors Do About Student Loan Debt?

Unfortunately, there’s no magic bullet that helps seniors make their debts disappear. This is especially true with student loans, since they can almost never be discharged in bankruptcy outside of rare, specific situations.

This means senior citizens have many of the same options as their younger counterparts when it comes to dealing with student loan debt — they just have a lot less time to figure out a plan.

Some options anyone can consider for their student loans (including seniors) include:

  • Income-driven repayment plans like Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income Contingent Repayment (ICR), and Income Based Repayment (IBR) let you pay a percentage of your “discretionary” income for up to 25 years before having your loan balances forgiven. This means you can get a more affordable monthly payment, although you’ll pay on your loans longer. You also have to pay income taxes on forgiven amounts when these plans, but senior citizens who may not be around to pay their loans off may not worry that far ahead.
  • Graduated payment plans for federal student loans let you pay smaller payments now that slowly balloon over time, although they still only last 10 years unless you take out a consolidation loan.
  • Extended repayment plans let you lengthen your repayment timeline for up to 25 years, securing a lower monthly payment in the process. You’ll pay on your loans longer this way, but your monthly savings can be significant.

Another option that can work well for seniors specifically is refinancing your student loans with a private company. Seniors are mostly likely to have great or excellent credit, which is a requirement if you want to refinance your student loans with the best rates and terms.

With a company like Earnest, for example, you may be able to qualify for fixed rates as low as 3.50% if you set your loans up on auto-pay. Considering Direct Unsubsidized Loans charge a fixed rate of 6.6%, that’s a significant difference and one that could help you save significant sums of money. You also get the benefit of choosing your loan term, and you can choose a monthly payment amount that makes sense with your monthly budget.

Keep in mind, however, that you’ll lose some consumer benefits if you refinance federal student loans with a private lender. This includes access to all the income-driven repayment plans we listed above, along with deferment and forbearance.

The Bottom Line

If you’re a senior citizen with student loan debt — or really anyone with student debt, you should know that you’re not alone. The costs of college have made it so borrowing tens of thousands of dollars to earn a degree has become the norm, and this problem affects everyone who plans to earn a degree regardless of age.

The best step you can take now is figuring out how to reduce your monthly payment so it’s not so detrimental to your budget. That may mean extending your repayment timeline, which is a real bummer when you’re already in your golden years. Then again, you may want to consider refinancing your student loans with a private company to secure a lower interest rate.

Finally, you can always work together with your children to address these financial challenges as a family.