Mention student loans, and everyone thinks of young college graduates burdened by hefty educational IOUs. But this kind of debt is also increasingly affecting baby boomers headed for retirement and senior citizens already trying to survive on fixed incomes.
“It’s a growing problem,” said Emily Brandon, author of a new book Pensionless: The 10-Step Solution for a Stress-Free Retirement and a senior editor for U.S. News & World Report magazine. “These loans stay with you until they’re paid off, and conceivably you can carry them well into retirement.”
Some borrowers do just that. Studies show the number of older adults saddled with student loans — for themselves or for their children — has been steadily growing during the past decade. The number of Parent PLUS borrowers age 60 and older was up to 2.2 million from 700,000 in 2005, according to the Federal Reserve Bank of New York. And the U.S. Government Accountability Office (GAO) reported that the total outstanding education loans held by people 65 and older had grown to $18.2 billion in 2013, from $2.8 billion in 2005. That’s twice the rate of the overall growth in student debt.
In the New York Fed’s report, “The Graying of American Debt,” economists found that debt for people ages 50 to 80 had increased by about 60 percent over the past dozen years. Student loans were largely to blame. While auto, credit, mortgage and home equity credit had remained stable, student debt had more than doubled. This troubling trend has alarmed both senior advocates and financial experts, who warn that this situation threatens already-shaky retirement prospects.
“As an older adult, you don’t have as many years of income ahead of you to pay this money off,” said Heather Jarvis, a North Carolina-based attorney and student-loan consultant who advocates for student borrowers. “They are at a vulnerable stage in life economically. Their income is likely to go down, not up.”
Several factors are to blame for the increase in student loans among the senior set. Higher education costs have skyrocketed. The Great Recession ate away at nest eggs, and wages have remained stagnant. What’s more, there’s been a shift away from outright scholarships and gift aid in financial aid packages.
Yet the student loan crisis among older adults is hardly due to an increase in parents financing their kids’ education. In fact, the GAO’s 2014 report found that only 27 percent of the loan balances held by borrowers between 50 and 64 years old was for their children. The remaining 73 percent was for their own education. The figure was even higher for those over 65: Some 82 percent of the loan balances was for them.
While the GAO couldn’t determine when these loans were taken out, some speculate a hefty percentage of these borrowers might have returned to school to update skills or find new job opportunities.
“It’s been something of a perfect storm,” Jarvis said. “At a time when education is more and more critical for job security and success, it has also become more expensive and families have found it more difficult to save enough to pay for it.”
Though these student loans affect only a small proportion of seniors, the prospect of debt may change the landscape of retirement.
“Those [boomers] with lingering student loans are most likely the ones who don’t have the savings or the financial reserves to retire,” said PricewaterhouseCoopers partner Kent Allison. “They’re the ones who are still paying off loans instead of saving more for retirement.”
For the past five years, PwC has conducted a financial employee wellness survey. In the 2016 report, the global consulting and accounting firm found that 11 percent of their baby boomer employees carry student loan debt, a considerably smaller number than the 42 percent of their millennial workforce who do. However, among boomer borrowers, 51 percent said these loans had a significant effect on their ability to meet financial goals. (About 35 percent of millennials agreed with that statement.) In addition, those with student loans admitted to having less money for retirement savings.
PwC has seen a jump in employees who plan to retire later, Allison said, with retirement savings given as the No. 1 reason for that delay. “What people are saving for retirement is woefully deficient,” he said.
Student loans are almost impossible to discharge, even if a borrower files for personal bankruptcy. If a retiree (or any borrower) has not paid a federal student loan for 425 days or more, the Department of Education can begin collection proceedings.
That’s what it did with Robert Murphy, a 65-year-old Massachusetts father who took out 12 Parent PLUS loans originally valued at $220,765 to pay college costs for his three children. Out of work, his house in foreclosure, Murphy filed a court suit to dismiss the loans. In April, in a closely watched and highly unusual ruling, a federal appeals court urged a bankruptcy judge to allow him to erase the debt.
No one expects this to become common practice, however. By law, the government can suspend tax refunds or garnish wages to collect the unpaid balance of a PLUS loan. In the case of retirees, it can also collect a portion of Social Security benefits to pay for unpaid student debt. The amount withheld can vary, but remaining Social Security monthly payment cannot be reduced below $750.
“It may not sound like a lot of money,” financial journalist/author Brandon said, “but losing even $100 [a month] can be a big deal if Social Security is the only income you can count on.”
The GAO report found that the number of seniors who had their Social Security benefits withheld to pay for student debt increased six-fold, from 6,000 in 2002 to 36,000 people in 2013. That number is not likely to go down anytime soon. Twenty-seven percent of loans held by people 65 to 74 were in default, as were more than half of loans held by those 75 or older. In comparison, federal student borrowers between 25 and 29 maintained a 12 percent default rate.
Some seniors try to apply for a deferment or renegotiate a payment plan. Nina Parker of North Miami is one of them. The 70-year-old retiree took out a $25,000 Parent PLUS loan for the second of her four children in the 1980s. At the time she and her husband had ample resources to pay back the debt, but then a series of events — caring for three orphaned grandchildren, her husband’s death, her daughter’s death, retirement and a serious illness — forced her to stop monthly payments. When her mortgage went into foreclosure in 2015, she asked the federal government for a deferment.
“Retirement hasn’t been what I thought it would be,” Parker said. “I didn’t think I’d be still paying for a college loan, but there never seems to be enough to do what I have to do.”
Parker’s case isn’t that unusual. Unforeseen circumstances — a death, an illness, a job loss — are usually to blame for a loan default. And when that happens, “if you don’t have the financial reserves or something unexpected has happened, the whole house of cards can collapse around you,” Jarvis said.
With attention focused on the millennial generation’s growing dependency on student loans, little has been noted about this other potential debt crisis, one that is unlikely to go away anytime soon. Today more parents are borrowing money for their own and their children’s higher education. Borrowers holding Parent PLUS loans made up 19.9 percent of the federal student loan borrowers during the 2011-12 academic year, according to an analysis of Department of Education data by personal finance site NerdWallet. That’s up a whopping 385 percent from 1989-90, when parents made up only 4.1 percent of PLUS loan holders.
The average balance of a Parent PLUS loan went from $15,323 to $40,154 in the same time period.
In response, more companies are offering employees help in repaying student loans. Starting this summer PwC will offer its associates and senior associates $1,200 a year to help pay off student loan debt. Boston-based Fidelity Investments also offers full-time employees at the manager level and below $2,000 a year toward their student loans, up to a total of $10,000.
This kind of perk helps employers attract and retain talent, says Brendon McQueen, CEO and founder of Tuition.io, which is administering Fidelity’s program. McQueen launched the company after he ended up with 12 student loans. He believes help with loan repayments can be attractive to workers of all ages, not just young graduates. Faced with a potential mass exodus of boomers, a company can use this benefit as a retention tool.
“This isn’t just about millennials,” McQueen said. “It’s about valuing employees and helping them attain a retirement that is comfortable regardless of age.”