When most people think of the student debt crisis, they imagine young faces. They see Gen Z, Gen Y and Gen X. They think about the difficulties young people have in advancing their careers and affording a home. They definitely don’t think about Baby Boomers.
But as recent data has shown, seniors are feeling the burden of student debt. When most of their friends are paying off mortgages and coasting into retirement, these seniors are scrambling just to make ends meet.
Here’s why seniors are the fastest-growing demographic with student loans – and why they’re struggling to make their payments.
Why Seniors Have so Many Student Loans
As of 2019, there were 3 million seniors in America with student loans. According to research done by the Wall Street Journal, total student loan debt for those 60 and older increased by 161% from 2010 to 2017.
Many seniors borrowed money for a graduate or professional degree, but a large swath borrowed to pay their children’s tuition.
The rules are different for parents who take on student loans for their children’s education, and that can lead to higher debt totals. The federal government limits student borrowers at $31,000 in total, but the limit for Parent PLUS loans is the difference between annual tuition and the total financial aid the child receives.
For example, the average tuition for the 2016-17 school year was $41,468 a year. If a child attends a college with a $160,000 four-year price tag and takes out the maximum $31,000 in federal loans, the parent in this situation would be allowed to borrow $129,000.
Interest rates on Parent PLUS loans are also higher than other federal student loans. The rate for students is 4.53% while the rate for parents is 7.08%. Parents who want to defer their loans will still have interest accrue on those loans.
Some parents also take out private loans, which usually have higher interest rates and fewer repayment options. The combination of high limits and high interest rates can be disastrous for parents, especially if their financial situation deteriorates after taking on the debt.
Cosigning is another potential source of trouble for parents. Even if the loan is in their child’s name, cosigning will force them to take responsibility for the loan if the child defaults.
Why Seniors Struggle to Pay Off Their Loans
Carrying student debt into retirement age is a problem in and of itself, but many seniors also appear to be struggling to make payments. In 2015, 37% of those 65 and older with student debt defaulted on their loans.
In many cases, the problem starts when senior borrowers are forced to retire early and live on a fixed income. A 2019 study from the Center for Retirement Research at Boston College found that 37% of retirees quit working before they wanted to, often because of unexpected health problems.
When that happens, they have to start living off disability or Social Security. Those payouts are often far lower than their previous income, leading to an inability to make loan payments.
If those health problems result in costly medical bills, it can make repaying student loans all the more difficult. Seniors who are retired or unemployed may also find it difficult to refinance their loans for a lower interest rate because lenders usually want to see proof of income.
Stagnant wages and rising housing costs also leave less for student debt payments. The Pew Research Center found that the average wage today has the same purchasing power it did in the late 1970s.
What Seniors Can Do About Their Student Loans
Though the situation seems dire, there are things seniors can do about their student loans. If the interest rate is high, an option is to refinance those loans for a lower rate.
Keep in mind refinancing federal student loans means a loss in many benefits – income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.
For seniors who don’t qualify for a refinance, two options are taking out a home equity line of credit or a 401(k) loan. These are riskier because if you default on a HELOC, you could lose your home in a foreclosure. If you lose your job before you’ve repaid a 401(k) loan, you may have to repay it immediately.
Parents with PLUS loans are eligible for Public Service Loan Forgiveness, which forgives the remaining balance after 10 years’ of payments if the parent as working for an eligible employer, like the government or non-profit.
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