It’s hard enough paying off college loans off your wages. It doesn’t get any easier when you retire.
The fastest growing portion of the US student loan stack of $ 1.7 trillion is held by the oldest borrowers. There are now about 8.7 million Americans over 50 still paying off college loans, and their debt has increased by about half since 2017.
Since 2017, college debts have grown the fastest among older Americans
Source: Ministry of Education
Some took out loans to help their children and could be well over 90 before they finish repayments. Others went back to school later in life. In both cases, borrowers were burdened with high interest rates that inflated their balances.
“The interest has come on in a big way,” says Alma Topete, 60, who borrowed about $ 30,000 and now owes $ 70,000. “I never expected to have to take out a loan at that age.”
Therefore, the impending resumption of student loan payments is a cross-generational challenge. A pandemic moratorium is set to expire at the end of September, and no progress has been made so far on debt relief, which President Joe Biden promised in the election campaign.
Student loans shouldn’t become a lifelong burden. The US higher education system, which relies more on individual credit than global peers, is based on the idea that graduates should be able to pay off debts relatively early in their working lives. Most loans come with a 10-year repayment plan that is one-third the length of a typical mortgage.
Still on the hook
Average student debt per borrower by age group
Source: National Student Loan Data System
But the reality is very different for many borrowers. Frank Sizer Jr., who is 77 years old, estimates he has almost two decades more payments to go. Sizer, a former prison guard, borrowed money to help his son study biology at Bridgewater College in Virginia. He retired in 2010 – two years after his son graduated – and currently owes about $ 52,000.
“God knows what the original amount was,” he says. “It just kept growing.” He expected to have paid it off before retirement, and it just got tougher to find the $ 500 monthly loan payments because “you don’t have the income you had when you worked.”
One reason parents of borrowers like Sizer often find their loan balances swell is because they pay higher interest rates.
As of mid-2006, state loans under the Parent PLUS program have been charged an average of 466 basis points over US Treasuries, well above the typical interest rate for student borrowers. And parenting loans also come with a high one-time commitment fee. The current interest rate is 4.23% of the total – about four times what students typically charge.
It’s not just parental borrowers who suffer from rising loan balances late in life.
For many older Americans, a smooth career path that would have enabled them to repay loans on schedule has proven to be unattainable – especially in the job market, which has often been difficult since the 2008 financial crisis. Some went back to school to regain new skills and instead had to take on new debts.
Prior to the Pandemic Forbearance, about one in ten elderly Americans with college debts were unable to keep up with payments
Source: New York Fed Consumer Credit Panel / Equifax
Topete used to be a school bus driver in Stockton, California until successive traffic accidents led to debilitating health problems that eventually left her unemployed.
Her main goal after that, she says, was to go back to school and “work with computers” to qualify for “more of an office job”. As a single mother, she needed the loans to pay for everyday bills as well as books and courses.
But now she says medical problems make it unlikely that she will be able to work full-time and make enough money to ever repay the debt in full. “I just don’t see any way out.”
Unlike many types of debt, there is no way out of the student loan through bankruptcy. Nationwide supported people are excusable in death, so that they are not passed on to loved ones.
Retirees who still owe money can deduct loan repayments from their Social Security income. In fiscal 2019, the last full fiscal year before the pandemic freeze, the Department of Education received $ 4.9 billion back from benefits due under government programs.
That has helped make student debt a talking point in retirement homes and college bars.
Debt share by product type and age
Americans over the age of 50 have $ 370 billion in student loan debt
Source: New York Fed Consumer Credit Panel / Equifax
For example, at The Villages, a huge age-restricted community in central Florida, the average loan balance rose to $ 17,921 in late 2019, from $ 11,110 a decade earlier. Prior to the Pandemic Forbearance, one in eight borrowers was seriously in default, according to the Philadelphia Fed’s Consumer Credit Explorer.
If payments are due again on October 1st, further payments may no longer be possible. It is not clear if the government has taken steps towards debt write-offs by then.
Biden pledged to provide up to $ 10,000 in student loans per borrower. But the president says he is reluctant to use executive power to cancel the debt, as some Democrats have urged, and that his administration has not outlined an alternative strategy.
Topete, who is not currently working, says she isn’t sure how to make her payments after the Covid-19 freeze ends. Debt relief would be a “blessing,” and if the administration didn’t, they should at least change the law to make student loans in bankruptcy deductible, she says. “I want to retire debt-free.”
Sizer, the retired prison guard, says he is “very pessimistic” about loans being made, but the government should find a way to cut interest payments even if they don’t write off the principal. He says the U.S. college system is geared towards those who can afford to send their children across the country debt-free.
“All parents want their child to be successful and have the right start in life,” says Sizer. “If education is as important as everyone makes it – which I agree – there should be a better way to improve the playing field.”
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