Lingering student loans
Student loans are typically associated with youth. However, due to the rising costs of college tuition and related expenses, it’s not uncommon for parents or grandparents to gain and carry debt by being the primary borrower or co-signer of a child or grandchild’s education loan. It is also not unusual for borrowers to carry debt from their own education well into their senior years. For retirees living on fixed incomes, having student loans can be burdensome and have a negative impact on their financial wellbeing. Is there any relief?
Why college debt?
There are numerous reasons why people may carry college debt into their senior years. Mainly, fixed incomes and financial challenges interfere with one’s ability to repay student loans, thereby forcing senior citizens to carry these loans into retirement. While the federal government is “working on” ways to reduce financial burdens, particularly for young borrowers, low-income individuals, and possibly those with decades old debt plus runaway interest, it is unknown whether those efforts will come to fruition. The President’s initial attempt to cancel debt for 43 million people was overturned by the Supreme Court last year. The court ruled that the Biden administration lacked authority to cancel or reduce student loan debt. Still, the Biden administration used workarounds to cancel some $48 billion in student loans through existing federal student loan forgiveness programs.
Can older people write off loans?
In England, repayment plans allow for most student loans to be written off after a set period, for example 25 or 30 years of repayment or when one turns 65. In the United States, no such age-related federal student loan forgiveness exists. If you have student debt going into retirement, you are expected to pay it until it’s paid off or you die. This is particularly hard on fixed income households. Student loans typically cannot be dismissed through bankruptcy. If you default on federal student loans, the government can garnish 15% of your Social Security benefits. Additionally, private lenders don’t offer loan forgiveness, so there is currently little in the way of relief for those carrying the burden of long-term college debt.
Talking big numbers
Per Tate Law, Americans over age 50 carry the fastest-growing balance of student loan debt. Here are some recent federal student loan statistics. In the U.S., the age group of 50 to 61, with 6.4 million borrowers, carries $282 billion in student loans. And there are 2.4 million borrowers aged 62 or older that owe $98 billion in student loans. For those age groups, it is likely that paying student loan debt can interfere with adequately saving for retirement. Borrowers who miss or postpone repayments may also be saddled with compounding interest, thereby making financial matters worse. It’s currently unclear whether new forgiveness options will be available to debtors with mounting interest. The Department of Education is working on formalizing rules that may include some help options, but it is unknown how far reaching they may be.
Consequences of soaring educational costs
College tuition for students is rising each year. “The average in-state cost of tuition and fees to attend a ranked public college is nearly 75% less than the average sticker price at a private college, at $10,662 for the 2023-24 year compared with $42,162 respectively, U.S. News data shows.” Unfortunately, the way the higher education system works in the U.S. frequently requires parents or even grandparents to bridge the gap between scholarships, grants, and student loans to make the college dream happen. Ultimately, debt may be part of the price one must pay for college education. However, carrying student loan debt is particularly concerning for senior citizens who rely on Social Security as their primary source of income. Bankrate shares, “Older borrowers also tend to carry additional debts compared to younger borrowers, including mortgages and auto loans.” Thus, carrying student loans can add to the burden.
Is there an easy way out for seniors?
Refinancing may sound like the golden ticket for seniors with college debt, but it is not an ideal fix. While federal and private borrowers have options to refinance and lower rates with private lenders, the process negates previously available federal benefits. For example, one may lose access to federal loan protections, forbearance, or income-driven deferment options, just to state a few. Older people experiencing difficulties paying back student loans can seek Income Based Repayment (IBR) options, which consider a debtor’s income and their ability to pay. Those having trouble with overall finances should seek the advice of a professional financial advisor to help navigate the complicated world of taxes, laws, and debt in which we live.
This article is for general purposes only and is not intended as a substitute for professional financial advice.
