There’s a retirement crisis in America today. The national savings rate is at a putrid 3%, consumer debt levels are hitting all-time highs, and stock portfolios are shedding their value amid the popping market bubble. When you factor in the collapse of public pension systems and Social Security nearing insolvency , it’s going to be a grim winter for seniors nearing retirement or who have quit the workforce. But there is a new problem creeping to the surface: student loans.
When we think of student loans, we conjure up images of the hipster gender studies graduate sentenced to a lifetime of working as a Starbucks barista, trying to pay off xyr/hir $40,000 student loan. We never think about the indebted 64-year-old working widow who tried to get another job just to keep up with a decent living standard.
But that’s life for a growing number of older Americans who borrow to fund their education as well as their kid’s.
Senior Student Loan Debt
In 2017, Americans 60 and older maintained an aggregate $86 billion in student loan debt, rising 161% since 2010. This may be a drop in the bucket in the overall $1.5 trillion student loan debt problem, but it is becoming a mounting issue for seniors who owe an average $33,800, which represented a 44% increase from 2010.
In total, U.S. consumers in this age group owe a little more than $600 billion in auto loans, credit cards, student loans, and other borrowing instruments. This is up 84% since 2010 and is the biggest increase of any age category.
There are two groups of seniors: those who take out student loans on behalf of their children or grandchildren and those who borrow to improve their lives. Getting a little grayer and wishing to spend their remaining days binge-watching Turner Classic Movies and reading Death in Venice in Venice, both these groups are starting to regret their choices made many years ago.
The Wall Street Journal profiled two subjects: 66-year-old Ante Grgas-Cice and 65-year-old Raymond Abdallah. The former borrowed roughly $30,000 in student loans to study culinary arts at the Art Institute of New York City to help realize his dream of owning a restaurant (it failed). The latter signed up for federal Parent PLUS loans to cover his son’s tuition in 1997. Both men are still repaying their obligations. Grgas-Cice had a portion of his $1,600 monthly Social Security check garnished by the federal government, while Abdallah relies on credit cards to cover his basics as he still spends $400 a month to service these loans. All of the folks cited in the newspaper report think they will be paying off their student loans into their 70s.
“[This debt] affects your blood pressure, it affects your overall well-being,” said Abdallah. “At this age, you don’t expect to be in debt. It’s not where you want to be.”
Parent PLUS
It is the Parent PLUS program that seems to be wreaking the most havoc on older Americans. This federal student loan marketed to parents of dependent undergraduate students is a financial product that holds a fixed 7.6% interest rate, plus a 4.248% origination fee. The government initiative maintains looser standards than other loans offered by traditional banks and private lenders, making borrowing easy –– there is no cap on how much money parents can borrow.
While experts recommend parents to borrow direct loans, Parent PLUS appears to be a popular program. During the 2017-2018 academic year, the federal government issued $12.7 billion in loans, up from $3.3 billion in the 1999-2000 school year. Last year, parents owed an average of $35,600 in these loans, up from $6,400 in 1993. One parent quoted by the WSJ said he and his ex-wife pay nearly $2,000 a month after signing up for $136,000 in Parent PLUS loans to help their two children attain an education. He called it a “very dark cloud” that lingers “in the back of my mind.”
Could this mean millions of parents and grandparents will default on these loans? Since it is government-related debt, the state will always get its money back: Tax refunds can be seized, Social Security payments can be garnished, and the state adds fees and late charges. You also cannot be discharged in bankruptcy. But one-quarter of Americans between 65 and 74 are delinquent on other student loan debts — that figure shoots up to half for those 75 and older.
A Permanent Trend
The Government Accountability Office published a similar report in 2014, finding that the number of seniors over 65 with student loan debt quadrupled to 706,000 households since 2004. AARP Public Policy Institute does not anticipate any relief in sight, and the organization expects this to be a long-term trend, even for millennial graduates when they hit their elderly years.
