A new student loan study from the American Association of Retired People (AARP) reports that the student loan balances are growing most rapidly among older Americans. Student loan default rates also increase with borrower age.
The wide-ranging study discusses how the $1.5 trillion in U.S. student loan debt, as of December 2018, is spread out demographically, especially by age.
Findings from the AARP Study
Let’s take a deep dive into the AARP study, and see exactly just what it reveals about the student loan issue, and how it’s impacting Americans of all ages – but especially older Americans.
Older people face an increasing student debt burden
According to the AARP, U.S. adults 50-years-old and up owe 20% of all student loan debt – a total of $289.5 billion. That’s up from $47.3 billion in 2004, a more than five-fold uptick in student loan debt over the past 15 years.
The growing trend toward older Americans with student loan debt shouldn’t be a surprise, AARP reports.
“The overall increase reflects a sharp rise in both the number of families borrowing and the amounts they borrow,” the study states. “Historically, people tended to incur debt at younger ages — to pay for their college education and buy homes — and then paid the debt off during their working years.”
Yet as AARP points out, that was then and this is now – and older Americans are dealing with that reality with regular student loan bills well into their 40’s, 50’s and beyond.
“Over the past three decades, however, the life cycle of debt has changed dramatically,” AARP reports. “The full cost of attending college has increased substantially during this period, with the average cost of a four-year higher educational institution more than doubling on an inflation-adjusted basis.”
Simultaneously, government funding for college students has decreased on a per-student basis over the past few decades and inflation has chewed into family household income. That’s a big problem, AARP notes.
“As a result, more students are taking on greater amounts of student loan debt than in the past,” the report states. “This creates a large repayment burden, which squeezes budgets of young families and, in many cases, impedes and delays their ability to save for a home or for other purposes such as retirement.”
“Over the life course, families have more student loan debt at younger ages and carry the debt with them for longer periods.”
Older Americans are taking on more debt for their kids
For older consumers, it’s not only the difficulties of repaying student loans taken out years ago. Today’s parents with college-age children are also either borrowing parent loans or are cosigning loans for their kids.
“Increasingly, relatives are taking on debt to help finance a family member’s education,” AARP states. “This includes taking out loans directly or cosigning loans for students who cannot qualify on their own.”
That’s another headache for mom and dad, especially on cosigned loans. “Given that cosigners are responsible for making loan payments when the borrower fails to do so, a seemingly simple secondary signature can ultimately create financial hardship for an older cosigner who never expected to be saddled with such payments,” AARP reports.
Older Americans are battling debt on multiple fronts
Another big reason so many older Americans are struggling with student loan debt is that, aside from their own student loans and the ones they’ve taken on for their kids, parents have other big debts to pay, too. That keeps them from finally paying off their own student loan debts.
“Compounding the problem is that many older borrowers in or near retirement often face their own debt burdens, most often from a mortgage or credit cards,” the AARP report states. “The increase in student loan debt today is an intergenerational problem, burdening borrowers of all ages and threatening the long-term financial security of millions of families.
Mom and dad can’t save for their kids’ college fund
Another roadblock for parents who have kids going to college – perhaps as many as one in six are still repaying their own student loans, making it difficult for them to save for their children’s college costs. That scenario will lead directly to parents having to borrow thousands of dollars to get their children all the way through to graduation.
“Notably, millennials and generation Xers also said their student loan debt has prevented or delayed their ability to save for their children’s education,” AARP reports. “This inability to save increases the likelihood they will need to borrow when the time comes for their children to attend college, thus perpetuating the intergenerational student loan debt cycle.”
Borrowing for children’s’ college costs grows more pervasive – and problematic
In addition to dealing with their own college debt, and other major household debt issues, parents have actually increased their debt burdens extensively by either cosigning a student loan for their children or taking one out directly on their behalf.
The combination of their own student loan debt and their children’s student loan debt is taking a toll on household pocketbooks, AARP notes.
“The use of debt to finance education has grown during the past few decades, particularly for older families,” AARP states in its study. “In 1989, 3.1% of families headed by someone age 50-plus carried student loan debt, owing an average of $10,073.”
“In 2016, 9.6% of families headed by someone age 50-plus carried student loan debt, with the average amount owed more than tripling to $33,053.”
Additionally, during the 2017–18 academic year, borrowing by both parents and students—comprised 24% of the entire funding costs of college, while parent contributions through income and savings accounted for 34%, AARP reports.
On the borrowing front, parents used different tools to dig up money to cover college costs for their sons and daughters.
According to the AARP report, most parents relied on Federal Parent PLUS loans, private student loans and credit cards, while a small minority took money out of their retirement account to pay for their child’s college costs.
Student loan debt for 50-Plus Americans is accelerating
It’s no surprise that student loan debt for younger Americans is rising substantially, but what is a surprise is the growing college loan debt burden for 50-and-up Americans is growing even faster.
According to the AARP, “aggregate student loan balances of borrowers ages 50 and older increased by 512% (inflation adjusted), from $47.3 billion in 2004 to 289.5 billion in 2018. Furthermore, about 8.4 million borrowers are 50-years-old-and-older.
Default rates rising for 50-plus Americans
While the AARP notes that data on student loan default rates on older Americans aren’t specifically available, data from the Government Accountability Office (GAO) does show that “federal student loan borrower defaults increase with age.”
According to a GAO report from 2016, of 870,000 student loan borrowers aged 65-plus, 37% were in default, while about 29% of the 6.3 million borrowers ages 50–64 and 17% of the 37.4 million borrowers under age 50 were in default.
Solutions for Older Americans Struggling with Student Loan Debt
While the AARP report helps focus attention on the student loan debt problems faced by older Americans, there is no real relief in sight.
Higher college costs and longer repayment timetables are the chief culprits holding older Americans back on student loan solvency. That scenario has led to vexing problems like student loan default, wage garnishment and offsets of federal income tax refunds and Social Security benefit payments.
To reduce the negative fallout of student loan debt with Americans of all ages, AARP recommends the following action steps from academia, the U.S. government and private enterprise – and the sooner the better.
Reform the college financial award letter. AARP touts a universal financial award letter, common among all colleges, that is “clear and breaks down grant aid and loan aid that will eventually need to be repaid.”
Boost transparency on both public and private student loans. Any student loan servicing firms that are cleared by Uncle Sam should provide loan cosigners with regular, updated student loan statements (every month) and other critical loan information (i.e., like fees and interest rates).
“Servicers should also streamline the process for enrolling eligible federal borrowers in public service loan forgiveness and income-driven repayment plans,” AARP states. “Better communication of repayment options would help borrowers manage their debt.”
Direct access to income-driven loan repayment plans. Additionally, AARP recommends that federal Parent PLUS borrowers be allowed to enroll directly in income-driven repayment plans.
“Currently, Parent PLUS borrowers cannot do so directly; they must first consolidate their federal loans,” AARP notes. “Once consolidated, they can enroll in the least generous (for most people, this means a higher monthly payment) of the various income- driven repayment plans.”
AARP also advocates that all federal student loan borrowers be eligible for income-driven student loan repayment plans, even while they are in a loan default situation.
Easier bankruptcy mandates. Giving loan borrowers who are in bankruptcy expanded options would be a big help, too.
That expansion would open up relief options on “loans that do not provide access to income-based repayment options, private loans that lack death or disability discharges, and loans taken out for schools with documented histories of engaging in unfair, deceptive, or abusive acts and practices,” AARP reports.
No offsets on Social Security payouts. The federal government should do away with offsets that require older student loan debt payers in arrears to relinquish Social Security payments and federal tax return payments. “Borrowers are increasingly falling into default on their student loans at older ages,” AARP states. “Social Security is a lifeline for many borrowers and the offset often sends them into poverty.”