Student debt on the rise for the elderly


Student loan debt: It's not just for youngsters anymore. Experts say a small but growing number of elderly Americans are paying back student loans well into retirement, many of them struggling to keep on top of payments while on a fixed income.

In 2013, the amount of debt owed by seniors age 65 and up totaled $18.2 billion, a 650 percent increase from $2.8 billion in 2005, according to a September report by the U.S. Government Accountability Office. Seniors themselves incurred more than 80 percent of that debt, while others, for instance younger relatives for whom seniors co-signed loans, accounted for the remainder.

Even though the number of households with senior student debt comprises only 3 percent of total U.S. households, the blossoming growth in debt bothers economists like Charles Jeszeck, director of education, workforce and income security at the GAO and lead author of the report.

Student debt on the rise for senior citizens

Senior debt, Jeszeck says, might well continue to grow, and rapidly. "A lot of people went to school during the recession, and there was more borrowing," he says. "As these younger workers get older, they'll carry debt into retirement."

Debt often incurred later in life
Jeszeck says the report doesn't delve into loan origination -- the debt might be from decades ago, when seniors first attended college, or it might be from later-in-life schooling. He and others, though, suspect the latter is to blame.

During the Great Recession, from 2007 to 2010, the unemployment rate for men ages 50 to 61 jumped to 8.3 percent from 3.2 percent; for women in that age group it doubled, to around 6.5 percent. Many of the freshly unemployed returned to school for more training or to switch careers. They exited with three things: Diplomas, debt and the idea that they'd find employment gainful enough to repay that debt.

"I would be surprised if these were frivolous loans," says Jane Bryant Quinn, a New York-based financial journalist, author and AARP columnist. "When people need to make a living, they go for retraining," she says, not classes in advanced croissant making or basket weaving.

"In retirement," Quinn adds, "debt is never a good thing."

Kathy Gaeding knows that all too well. Gaeding, now 63, was trained as an elementary schoolteacher. After her husband died in 1998, she started evening classes at National Louis University's Elgin, Illinois, campus to earn a master's degree in human services.

"The whole going back to education revitalized me and helped me find some purpose," says Gaeding, who lives in Hoffman Estates, Illinois.

A lot of people went to school during the recession, and there was more borrowing.

-- Charles Jeszeck
Government Accountability Office

Gaeding took out two Sallie Mae loans totaling $44,800 to fund her education. When she graduated in 2002, she landed a job in senior services at a hospital, and has steadily held jobs in her new field. She is now a resource specialist at CJE SeniorLife, a Chicago-based social services agency for older adults and their families. The pay enables Gaeding to keep up with her $239 monthly student loan payments, but not much else. "It's prevented me from feeling that I have that little cushion," she says.

With 10 years of payments left, Gaeding expects to keep writing those monthly checks well into retirement, which she plans to take at age 66. After that, the payment might well come out of her Social Security benefits, as Gaeding doesn't have a pension or much in the way of retirement savings.

School was "satisfying," she says, "but probably not a wise decision."

Default rates much higher for seniors
So far, keeping up with payments hasn't played havoc with Gaeding's finances. Others aren't so lucky. The GAO report states that the default rate (defined as 270 days of missed payments for most federal student loans) rises with the age of the borrow. The default rates are:

  • 12 percent for those agest 25 to 49.
  • 27 percent for those ages 65 to 74.
  • 54 percent for those 75 and older.

Retirement finances can be bleak for seniors who fall behind in loan payments or default on their loans. Debt weakens credit scores and makes borrowing more difficult and more expensive, says Christopher Viale, president and CEO of the nonprofit service Cambridge Credit Counseling Corp. in Agawam, Massachusetts. Viale also chairs the Association of Independent Consumer Credit Counseling Agencies, a Fairfax, Virginia-based trade association.

Another caution: "If [seniors] default, they won't have access to reverse mortgages, and that's a huge tool seniors have to help with health care and other costs," Viale says.

People thought they were doing a favor for a child or relative, and then discovered they were on the hook.

-- Jane Bryant Quinn
Financial journalist

Fall behind in payments by a year or more and the Department of Education will take aggressive action, going after Social Security disability payments or retirement benefits once they are transferred in your bank account. From 2002 to 2013, the number of Americans whose Social Security benefits were "offset" -- that is, withheld and applied to pay student loan debt -- grew roughly 500 percent. There are limits on how much Social Security payments can be taken away, but not enough to keep the borrower living above the poverty line.

Prevention the best cure
If you're a senior struggling with student debt, you do have options. In the meantime, older workers can take steps to make sure they don't carry student loan into retirement. The most obvious one? Don't take on debt.

For people itching to become students again, "make sure that whatever you intend to do has a viable marketplace," Viale says. "So many people reach for the stars, and the best they can do is get a job for $30,000 or $40,000."

Bryant, for her part, warns against co-signing loans, even for a favorite nephew or granddaughter. "People who co-sign don't realize that if the person they co-sign for can't pay, then whoever co-signs has to pay," she says. "People thought they were doing a favor for a child or relative, and then discovered they were on the hook."

See related: How to avoid crushing student debt, How I financed 2nd college degree, balancing work, study, family

Published: November 11, 2014

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