The Surprising Reason Boomers Need to Know More About Student Loans
By Dan Kadlec
January 17, 2017
The student debt problem goes way beyond young people becoming so financially strapped they are unable to launch their life. These loans totaling $1.4 trillion also threaten the retirement security of boomers who borrowed to finance their kids’ higher education, new research shows.
Policymakers, employers and educators are rightly concerned with the massive load of student debt that weighs on young people. Millennials are putting off things like buying a home, getting married and having children. This takes a bite out of an already slow economy and further depresses young people’s chances of getting a good job or big raise. The ripple effect is one reason financial literacy experts are so concerned with educating young people about student debt before they go to college.
Less in focus is the student debt burden weighing on older Americans, many of who co-signed the private college loans that put their children or grandchildren through school. This has always been a dicey practice and points up the need for financial education at work—so that adults on the cusp of retirement learn to put their own financial security ahead of that of their college-bound children who have many decades yet to pay off loans and save.
In the last decade, the number of older student loan borrowers has quadrupled to 2.8 million and the average amount of debt per older borrower has doubled to $23,500, according to a report from the Consumer Financial Protection Bureau. About 70% of these loans financed the education of children or grandchildren. Older Americans are the fastest growing segment of the student loan market and around 40% of federal student loan borrowers ages 65 and older are in default.
If their kids’ college loans were all they owed retirees might be just fine. But the report also shows that many older Americans have a mortgage, credit card debt and an auto loan. Older student loan borrowers are more likely than those without student loans to skip health care expenses like prescription medicines and doctor visits.
In some cases, declining physical and cognitive ability after age 60 complicate the issue as boomers must navigate their work and leisure in light of their debts, the study found. This is especially true as it relates to myriad student loan repayment options. For example, older borrowers routinely say lenders have not explained income-based repayment plans, which in some cases would make sense for a retiree whose income has fallen.
Many borrowers over 65 also do not understand that Social Security payments cannot be garnished to service a defaulted private student loan and that they have full rights to loan statements and other information about their debt, according to the report.
Regulators have warned about problems and confusion in the student loan servicing market for years. But reforms have been slow. Corporate benefits professionals and community advisers would do older workers a service by addressing the options and issues that surround their private college loans for children or grandchildren. Increasingly, this struggle is for everyone.