The number of people 60 and older with student loan debt has quadrupled in the past decade, and older Americans now represent the fastest-growing segment of the U.S. student loan market, according to a new report by the Consumer Financial Protection Bureau.
As of 2015, more than 2.8 million Americans over 60 had outstanding student loan debt — up from some 700,000 in 2005.
The vast majority are loans taken out by parents or grandparents to finance education opportunities for young people, with 73 percent of borrowers over 60 reporting that their student loan debt is owed “for a child’s and/or grandchild’s education.”
Many private student loans require students to apply jointly with a co-signer or co-borrower, the report notes, and more than half of co-signers are over 55.
The average amount owed has also increased dramatically. In 2005, the average amount owed by borrowers 60 and older was about $12,000. In 2015, it was more than $23,000.
The increase in both the frequency and the magnitude of student loan debt has led to financial problems for some older borrowers. The CFPB report found multiple indications that people over 60 were struggling to repay student loan debt as they moved into retirement, including:
- An increased rate of late and missed payments by borrowers 60 and older
- A high rate of default among borrowers 65 and older (37 percent of federal student loan recipients in that age group are in default, compared to just 17 percent of borrowers 49 and under)
- Older student loan borrowers report they forgo basic health care needs more often than those without student loans.
- A growing number of Americans losing part of their Social Security benefits due to unpaid federal student loans. Student loans are one of the few exceptions to rules that protect federal benefits from being garnished.
Social Security is the only source of income for nearly three-quarters of people 65 and older. “This means that benefit offsets may impose serious financial hardship for many of the affected older borrowers,” the report states.
The conclusion by the CFPB is that older Americans are frequently in a poor position to handle paying back student loans on behalf of their children and grandchildren. “Unlike their younger counterparts, who generally are expected to experience income growth over their lives, older consumers typically experience a decrease in income as they age,” the report concludes.
For federal student loan programs, the CFPB recommends an “overhaul” to help older Americans take advantage of income-driven repayment plans. The report’s authors give the following example:
“Consider the case of a retiree whose income is limited to only her $1,165 monthly Social Security check, which is the median Social Security benefit for an older consumer that depends on Social Security for all of her income. If this retiree has defaulted on a federal student loan, the government can deduct or ‘offset’ $60 from her monthly Social Security benefit, reducing her annual income to $13,240.
“However, by rehabilitating or consolidating her defaulted student loans, this same borrower would no longer be subject to the Social Security offset and would also become eligible for an income-driven repayment plan. Given her low income, the [income-driven repayment] payment formula would set her monthly payment amount to $0.”
For private loans, the CFPB suggests lenders provide more and better information to students, parents and grandparents. “Prospective cosigners would benefit from lenders and school financial aid officials providing counseling and/or effective information and communication regarding the liability that a co-signer undertakes,” it says, but does not suggest federal regulation to mandate such practices.