Student Loans: Not Just a Younger Generation’s Problems

A growing number of retirees are facing the same battle as their grandchildren: student loan debt.

According to the Federal Reserve Bank of New York, a small but increasing number of baby boomers and seniors have been carrying student loan debt into midlife. Today, there are 2.2 million borrowers age 60 and above, double what it was in 2007. Of those, the rate of borrowers who are delinquent (90 days or more behind in payments) went from 7.4 percent in 2007 to 9.5 percent in 2012.

While these are relatively small increases when compared to younger borrowers, the numbers show that older borrowers could be putting their retirements at risk. The federal government can, and will, withhold money from Social Security benefits to recoup federal student loan losses. One silver lining is that the federal government also provides financial assistance programs for seniors. These programs can certainly help seniors struggling to pay their bills.

A Growing Problem

Financial analysts say that student loan debt is now the largest form of consumer debt after mortgages. Student debt is estimated to be $1 trillion nationwide, and with college costs increasing annually, the debt load is expected to get higher.

The Federal Reserve showed that the largest group of borrowers, those under 40, predictably holds the largest amount of student loan debt per capita. But it’s those older borrows who have experts very concerned. One financial analyst said some consumers aged 65 and above carry more than $32,000 in student loan debt.

Effects on Social Security

Without a steady income flow, seniors may be tempted to just ignore the debt. But according to the Treasury Department, the federal government is withholding money from an increasing number of borrowers. From January through August of this year, the government dipped into 115,000 retirees’ Social Security checks to pay back student loans. That’s nearly double the number from the same time last year. In 2000, there were just six cases.

The amount taken from the check varies but can be up to 15 percent. That would be a $190 deduction from the average $1,234 monthly check, MarketWatch reported. Worse yet is that some of these borrowers don’t even have degrees to show for it; many took out loans to help out children or grandchildren.

“It’s really a unique problem we haven’t had to face before, and it’s only going to grow,” said Robert Applebaum, founder of the nonprofit advocacy group Student Debt Crisis.

Keeping Up With Payments

It’s always in a debtor’s best interest to stay on target with loan repayment, but this is especially true for student loans. According to Forbes, the reasons for not defaulting on a student loan are good ones:

• Future employment: An increasing number of employers are looking at credit reports when deciding on candidates. A credit report riddled with student loan defaults could mean the job goes to the next person.
• Tapping into the paycheck: In addition to being able to drain Social Security checks, the federal government can garnish wages to get the money back.
• Filing bankruptcy for student loan debt won’t help: In most cases, student loans – whether they are private or federal – cannot be discharged in bankruptcy.

With this looming crisis on hand, many student loan lenders are trying to make the payback rules easier to handle. Income-based repayments cap monthly payments based on what you make and the number of people in your household. Public Service Loan Forgiveness allows borrowers to work in certain public-service jobs for loan forgiveness after 10 years of service.