| February 3, 2017

Research of the Week: Seniors’ Student Debt Burden

Seniors’ student debt total has more than doubled in the past decade.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

The Federal Reserve of New York released a new report last month on the burden that older Americans face from student loan debt. The report finds that increasingly, seniors face a much tougher battle with debt than they did twelve years ago.

The big result

Overall, the debt burdens of borrowers age 50 to 80 increased by over 60 percent in the past 12 years. A big part of that increase stems from student loan debt, where the average borrower’s balance has more than doubled.

The fascinating details

The report finds that the average levels for most types of debt are fairly constant. Seniors have the same levels of mortgage debt, home equity lines of credit, auto loan debt and credit card debt. However, student debt saw a serious uptick. And this increase in overall indebtedness is risky for a population that largely lives on a limited fixed income.

So why are seniors so overburdened by student loan debt? A Government Accountability Office report released in 2014 provides some insight:

Seniors' student debt: education in exchange for a burden
  • Only 27% of the student loan balances held by borrowers age 50 to 64 are for children
    • In other words, 73% borrow to fund their own education
  • For borrowers 65 to 74, 82% funded their own education and 83% of borrowers over age 75 did the same

In the past people speculated that seniors faced increased student debt because of PLUS loans taken out for their children. However, this shows most of the debt results from personal education instead.

What’s more, seniors have higher levels of default on student loans:

  • Borrowers age 25-49 default at a rate of 12%
  • By contrast, borrowers age 65-74 default at a rate of 27%
  • Even worse, over half of borrowers over the age of 75 defaulted on their student loans

It’s not surprising that garnishment from Social Security checks has increased by more than six times in the past 10 years. Federal law protects seniors by guaranteeing they receive at least $750 per month from Social Security checks. But that’s not enough to live on in most places these days.

What you can do

“A fixed income in retirement is not meant to support significant debt elimination,” argues Gary Herman, President of Consolidated Credit. “That’s why, traditionally, experts recommend that consumers should eliminate as much debt as possible prior to retirement. Even minimizing mortgage debt is helpful because fixed income is not designed to carry a high debt burden. That’s particularly true if you rely on Social Security as your primary source of income.”

This means if you’re nearing retirement and thinking of going back to school, consider how to fund those continuing education costs carefully. Student loan debt cannot be discharged by bankruptcy, so you can’t just default and declare bankruptcy to get around repayment. If you incur the debt, it’s going to follow you until you pay it back.

With that in mind, make sure to explore all of your options. Look into local community colleges and search online to explore grants and scholarships specifically targeted to your age group. This will help minimize the cost of going back to school so you can expand your mind without increasing your debt burden.

Of course, that advice only helps those who haven’t yet slipped in to the student debt trap. What about seniors who already face an uphill battle to repay their student loans?

“If you took out federal loans, whether they’re subsidized or unsubsidized, you can apply for a hardship-based repayment plan,” Herman explains. “These programs set monthly payments based on what you can afford. That makes it easier to repay what you owe on a fixed income.”

An income-based repayment plan rolls all eligible loans into a single monthly payment. The specific amount you pay is based on your Adjusted Gross Income (AGI) and family size. In most cases, it equals out to roughly 15% of your income. If you took out your loans recently – i.e. after 2011 – then you may qualify for the Pay as You Earn program. This drops the monthly payment amount even lower, usually around 10% or less.

For more information on student loan repayment plans, visit Consolidated Credit’s free guide to Student Debt Repayment.

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