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It’s often assumed that the biggest demographic affected by the student debt crisis are those individuals either still in college or recently graduated from college. Recent data, however, reveals that another demographic is also increasingly impacted by the looming crisis resulting from student debt.
According to economists at the New York Federal Reserve, older Americans now hold a significantly larger amount of debt than they did 12 years ago. The amount of debt held by individuals between the ages of 50 and 80 has increased by approximately 60 percent over the past several years. Even more concerning is the fact that the amount of student loan debt held by this demographic has more than doubled. During this same timeframe, the amount of auto debt, home equity lines of credit, mortgage debt, and credit card debt has remained largely the same for borrowers in this demographic. Yet, the amount of student loan debt carried by seniors has increased dramatically.
Given the financial vulnerability that the elderly often face, this is quite a concerning trend. Making matters even worse is the fact that student loan debt does not function in the same way as other forms of debt. For instance, a borrower is not able to discharge student loan debt through bankruptcy. Furthermore, the Department of Education is capable of actually garnishing a borrower’s Social Security payments if he or she falls behind on their debt payments. This type of vicious cycle has the power to leave the elderly destitute.
Why exactly are so many seniors falling on hard times due to student loan debt? In many instances, it’s because parents have borrowed vast amounts of money to fund their children’s educations. Federal programs such as the Parent PLUS program make it possible for parents to do just that and millions of borrowers have taken advantage of that opportunity, racking up billions of dollars in student loan debt. Data from the Government Accountability Office backs up this theory. According to the GAO, 27 percent of student loan balances held by individuals between the ages of 50 and 64 was actually for their children. Not all student loan debt held by seniors is for their children, however. The GAO further reports that more than 80 percent of debt held by this demographic is for their own education.
Since there is also no statute of limitations when it comes to student loan debt, elderly borrowers are also facing the reality that the burden of debt they carry could stay with them until their death. While some borrowers might be able to believe that at some point they would become immune from collections, that is not the reality for seniors who find themselves burdened by massive amounts of student loan debt.
In fact, student loan debts can be incredibly difficult for individuals who are nearing retirement or who are already retired to pay off. And, it is difficult to determine when those nearing retirement should pay off the debt or increase retirement savings. While a recent college graduate might have the prospect of years of increasing wages to assist in paying off the loan, that is not the case for older debtors. Statistics from the GAO show that more than 50 percent of federal loans held by borrowers over the age of 75 are now in default.
This is precisely why many older borrowers are now seeking the help of consumer advocates. The collection activity, including garnishments of their Social Security benefits, is preventing them from purchasing food, paying their utility bills, or even paying their mortgage or rent. The GAO reports that the number of older people who had their Social Security checks garnished increased by approximately six times over the past 10 years. Legislation ensures that Social Security recipients are able to retain a minimum of $750 per month, but even that is not enough to keep many seniors from sliding into poverty.
While there has been discussion regarding legislation that would increase the minimum amount seniors are able to keep or cease Social Security garnishment altogether, for now, the best hope for many seniors burdened by student loan debt might be to enroll in an income-based repayment plan. This is a strategy that could prove to be beneficial for those older borrowers who are already below the federal poverty level.