Student Loan Debt Haunts Many Retirees
The Trump administration has resumed collections on defaulted student loans for the first time in five years; older borrowers are most vulnerable
Editor’s note: This is part 6 of a 12-part collaborative series between Next Avenue and Marketplace Morning Report.
Students in college rely on loans to pay for much of their higher education bill, and many young adults with student debt struggle to repay their loans while launching their careers and households. Less appreciated is how many older adults are also carrying student loans and paying them off threatens to undermine their retirement security.
"This elder student debt raises the risk that older people will not have adequate retirement income and may require public assistance," Karthik Manickam, a PhD student at the New School for Social Research, wrote in a recent paper.
The statistics underpinning his conclusion are eye-opening. Older borrowers make up an increasingly large share of the federal student loan portfolio. The ranks of student loan borrowers 62 years and over rose by 59% to 2.7 million in the six years ending in 2023.
"Having elders go into retirement in debt and having their Social Security checks garnished is not good for communities that depend on a vibrant retiree population."
Nearly one in three of older borrowers were in default in 2019. Older borrowers are twice as likely to have a loan in default than their younger peers. That's according to data collected by the Consumer Financial Protection Bureau (CFPB). These numbers are surprising, probably because older student debtors haven't received much attention.
"The assumption is that student debt is an issue for younger people, but it's increasingly become an issue for older people," says the New School's Manickam.
Mingli Zhong, an economist at the Urban Institute in Washington, D.C., agrees. "Usually, we think of student loans as younger people's burdens," she says, "but it also weighs heavily on older adults."
The financial squeeze on older student loan borrowers is tightening now that the Trump Administration has resumed collections on defaulted student loans for the first time in five years.
A majority of older borrowers went to college later in life and most took out federal student loans to pay for their own education. The investment is understandable. Data makes a compelling case that taking out loans to earn a higher education degree can pay off over a career if the sheepskin leads to the kind of jobs that pay enough to justify the investment.
Poor Return on Investment
The problem is that these graduates acquired student loan debt but not a good return on their investment. One reason may be that a significant number attended a high-cost, low-quality for-profit institution. Another factor is college plans were upended when life intervened. They didn't graduate, yet they now had debts to repay.
"They had to take care of a family member. The economy crumbled. They couldn't afford to keep going to school, and so they have debt, but no degree," says Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.
"The assumption is that student debt is an issue for younger people, but it's increasingly become an issue for older people."
"What we see is that the people who are older adults who still have student loan debt are actually in a financially worse place than those who never attended college at all," she adds.
That's a stunning and depressing outcome to contemplate. Nearly six in 10 of older borrowers entered repayment 15 years ago or more, according to New America, a think tank in Washington, D.C. Some one in three of those aged 62 and older were in default before the Covid-19 pandemic upset the global economy. Among people aged 55 years and older with their own student loans, one-third of them make less than $25,000 a year and 30% say they can't pay their monthly bills.
"They certainly can't afford these student loan payments when they're struggling to pay for their medication, for their heat, their rent and most of them don't have emergency savings," says Shafroth. "They're really living in quite a bit of financial insecurity."
Here's the recent worrisome twist. People who have defaulted on student loans have to start repaying them in May after a hiatus of five years starting with the pandemic. If older borrowers don't start repaying their loans, the federal government can garnish their Social Security checks.
"Having elders go into retirement in debt and having their Social Security checks garnished is not good for communities that depend on a vibrant retiree population," says Teresa Ghilarducci, an economist at the New School for Social Research in New York.
Benefit Minimum Eroded by Inflation
Legislation passed in 1996 allows the government to garnish up to 15% of Social Security payments for outstanding student loan debts. The government must leave Social Security beneficiaries with at least $750 per month in benefits. The figure at the time of the legislation represented about 110% of the federal poverty level.
"The protection was meant to ensure that the government wasn't pushing older or disabled adults who rely on Social Security into poverty just to collect on a loan debt. A big problem is that Congress didn't index this protection to inflation," says Shafroth. "So, $750 a month in the late 90s is very different from $750 a month now. Now $750 a month is way below the poverty line. People cannot live on that amount of money."
"What we see is that the people who are older adults who still have student loan debt are actually in a financially worse place than those who never attended college at all."
The number of Social Security beneficiaries experiencing forced collection grew by more than 3,000% in fewer than 20 years, according to the CFPB. The count is very likely to rise significantly now that borrowers in default have to resume payments. For instance, in the report "Social Security Offsets and Defaulted Student Loans," the CFPB calculates between 2001 and 2019 the number of people who had their Social Security benefits cut due to forced collection increased from approximately 6,200 to 192,300.
Compounding the worry, research suggests that the student loan debt of older adults rarely stand alone. Odds are they may be carrying credit cards balances, owe money on medical procedures and have other consumer debts. "If they have trouble paying down their debt, that usually suggests that they do not have enough savings," says Mingli Zhong, economist at the Urban Institute.
Thanks to little-to no-savings and significant amounts of debt, economic insecurity is all too common among America's near-retirees and retirees. For an unexpectedly large number of older debtors, student loan obligations that didn't pay off in the job market is pushing them to the financial brink.
Editor’s note: This article is part of our “Debt Free” series, a Next Avenue initiative made possible by a grant from the RRF Foundation for Aging.
