As retirement approaches, you should be making the most out of catch-up contributions in your 401(k) or IRA and socking away as much of your money as possible to prepare for retirement. Unfortunately, too many older Americans are unable to save properly for retirement – or even live outside of poverty during retirement – because of the burden of student loans.
A 2017 report from the Consumer Financial Protection Bureau (CFPB) found that Americans aged sixty and older were the fastest-growing student loan demographic, with almost 2.8 million holding at least one student loan. A recently released supplemental CFPB report shows that the increase in older student loan holders is spread across the entire nation.
Compared to 2012, every state showed at least a 20% increase in student loan borrowers aged sixty and older. Delaware led the nation with a 93% increase. Median loan balances per state in 2017 are on the rise as well, ranging from a high of $23,599 in Maine to $9,561 in Nebraska.
In the words of Adam Carroll, founder and Chief Education Officer of National Financial Educators, "There is no question we have an epidemic when it comes to student loan debt in this country." American student loan debt is indeed reaching stratospheric levels – but why would seniors be dealing with student loans at all?
Some seniors took out loans for re-training after a layoff or career change, while other loans are remnants of their original college days – but many are from seniors co-signing student loans for family members. The CFPB study found that over half of student loan co-signers are above age 55. Find out quickly at what rate you can refinance your student loan.
Should the family member fail to make payments, co-signers become responsible for paying off the debt. Many seniors appear to be unaware of that fact. Seth Frotman, Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB), notes that seniors do not always realize the obligations involved in co-signing student loans. "Quite often we hear from older borrowers that it was never made clear to them that they were essentially co-borrowers," states Frotman. "Many thought they were merely acting as references."
It's difficult enough to deal with student loans in your youth, because, as Jocelyn Paonita, Founder of The Scholarship System, puts it, "College debt has such a crippling impact for the rest of someone's life because you're not able to take advantage of opportunities right from the beginning." However, student loan debt is particularly difficult on seniors, since remaining opportunities are slim and retirement is imminent.
Default rates on student loans are also increasing for borrowers over age sixty, with fifteen states and Puerto Rico all reporting over a 100% increase in defaults over the last five years. Because defaulted student loans can't generally be discharged through bankruptcy and federal student loans allow for partial garnishment of Social Security payments, seniors with student loan debt could easily be forced into untenable economic choices.
What can you do if you are a senior dealing with a burdensome student loan? Look for programs that can provide potential relief. You may be eligible for federal student loan repayment programs that allow you to reduce your student loan payments greatly via income-based repayment. Details are available at the Federal Student Aid Website.
Think about these repayment statistics very carefully if you are planning on co-signing a student loan or financing the college education of a grandchild or other family member. They have a far longer time to deal with student loan debt than you do, and you have far less time to contribute to retirement funds than they do.
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.