Carrying student loan debt into your retirement years can make it especially difficult to cover your retirement expenses. A growing number of seniors are defaulting on paying their federal student loans and as a result are seeing decreased tax refunds and part of their Social Security benefit withheld to repay the loan.
According to a report released by the Washington, DC-based AARP Public Policy Institute (PPI), student loan debt his skyrocketing across age groups, and older American’s are taking a hit by financing college education for their children, grandchildren and other family members.
Federal Reserve data shows that Americans owed $1.5 trillion in student loan debt as of last December. An updated analysis shows people aged 50 and older owed 20 percent of that total, or $289.5 billion, a more than five-fold increase from $47.3 billion in 2004, notes the AARP report.
“It is stunning that more families are taking on such sharply greater amounts of student debt than in the past,” said Lori Trawinski, director of Banking and Finance at the AARP Public Policy Institute, in a May 15 statement announcing the release of the report..
Senior’s Assist Others to Pay for Education Debt
“For younger families, this burden impedes their ability to save for other purposes, such as for a home, their children’s education or for their own retirement,” added Trawinski. “For older families, long-term financial security can be threatened by this burden,” she says.
The PPI report finding’s reveal that most older borrowers hold loans taken out for their own education, and the percentage of borrowers aged 50 and older in default is much higher than for younger borrowers. Data also show that Parent PLUS (direct federal loan) borrowers aged 65+ are facing higher rates of default than younger age groups.
The ten-page PPI report includes survey results that focus on the role played by 50 and older Americans in helping “someone else pay for college and other post high school education.” (The survey specifically included only those individuals who have not yet fully paid off the debt or who have paid it off within the past five years.)
The researchers say, of those age 50 and over who helped pay for “someone else,” 80 percent helped pay a child’s education, compared with six percent who helped a spouse or partner; eight percent, a grandchild, and even smaller percentages “who helped other relatives or friends.”
Proactively Helping Student Borrowers
Researchers reported that the most common involvement by people age 50 and older was cosigning a loan (45 percent), while a smaller percentage (34 percent) ran a balance on a credit card and 26 percent took out a Parent PLUS loan.
Among those who cosigned a private student loan, nearly half – 49 percent – made a payment on the loan, often because they wanted to proactively assist the student borrower, say researchers, noting that 25 percent said they had to make a payment after the student failed to do so.
The survey asked the one quarter of survey respondents who had taken out a Parent PLUS federal loan, and who had made a payment over the prior five years, whether they ever had any difficulty making payments. Nearly a third (32 percent) did have a problem with at least one payment. The breakdown by race/ethnicity for those having a problem with a payment was: African Americans/Blacks, 46 percent; Hispanics, 49 percent, and whites, 29 percent.