How Student Loans are Hurting Seniors

How Old Debt Can Affect Your Social Security Payments

How Student Loans are Hurting Seniors
May 16, 2016

We can all think of potential economic burdens in our retirement years, but few of us would think of student loans as one of them. Unfortunately, a recent audit from the Government Accountability Office (GAO) revealed that a surprising number of seniors hold student debt, and increasing numbers of them are having difficulty repaying – resulting in defaults and garnishment of Social Security benefits.

According to the GAO’s report, the overall student loan debt held by Americans 65 years old or greater has skyrocketed from $2.8 billion in 2005 to over $18 billion in 2013. The study estimated the median student debt for those 65 and over at around $12,000.

Student loan debt is particularly dangerous, because it usually cannot be removed through bankruptcy, and defaulting on federal student loans can result in garnishments of federal benefits, including Social Security. Given the accrued interest and the extended timeline of student loan repayments, an unpaid student debt acquired earlier in life can easily perpetuate well into the retirement years.

The effects of garnishment on seniors can be catastrophic. Last year, approximately 22,000 seniors had enough of their Social Security benefits garnished that their monthly total fell below the federal poverty threshold.

The number of people affected is still not large; this age group held only 1% of federal student loans outstanding in 2013. However, seniors are disproportionately affected by default.

Of student debtholders between ages 65 and 74, 27% were in default (compared to 12% for those between ages 25 and 49). Even worse, the default rate for those 75 and older was a staggering 54%. Collectively, that’s over 540,000 defaulted student loans held by seniors.

How does this happen? Consider that there are multiple reasons people could acquire student loan debt in their 40’s and 50’s. They may be paying for their children’s education, or they may be going back to school to re-train or change careers after a job loss.

In the latter case, anyone who cannot find a suitable job in their new field is particularly susceptible to financial difficulties, future default, and potential garnishment. This is probably a significant source of defaults, given that 82-83% of the loan balances for those 65 and older was reported to be for their own education (although the survey does not distinguish when that debt was incurred).

While this information is disturbing enough with respect to seniors, it may actually represent the tip of the iceberg with the spiraling costs of college and dim job prospects for recent college graduates.

Many Americans reported cutting back on spending to make student loan payments, according to a recent Federal Reserve survey. With the total amount of unpaid student debt approaching $1.3 trillion and a consumer-driven economy, it is surprising that America’s economic growth numbers aren’t worse than they currently are.

In a recent Senate hearing on the Issue, Sen. Richard Blumenthal (D-Conn.) characterized the report as a “canary in a coal mine”, likening the effect on future generations to a tsunami or avalanche of debt. Meanwhile, Sen. Bill Nelson (D-Fla.) is proposing to work with Sen. Susan Collins (R-Maine) in a bipartisan effort to help seniors undergoing garnishment and introduce inflation indexing to keep garnishment above the current poverty level.

While Sen. Nelson’s effort is admirable, it doesn’t address the root of the problem. We must induce a robust economic recovery and job growth so that we do not end up with another generation of retirees with an even higher debt burden and default rate.

Find out quickly at what rate you can refinance your student loan.

Winnie Sun is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Sun Group Wealth Partners, a registered investment advisor and a separate entity from LPL Financial.

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