As we get older, it becomes increasingly popular to profess being young at heart and say things like “60 is the new 30.” Who wouldn’t want to feel and act younger? Unfortunately, the latest trend in turning back the clock isn’t quite so enjoyable.
Research shows that student loan debt isn’t just for younger people anymore. According to the Consumer Financial Protection Bureau (CFPB), the number of Americans aged 60 and older with student loans ballooned from 700,000 to 2.8 million between 2005 and 2015. With an estimated $66.7 billion in debt outstanding in 2015, these older Americans represented the fastest-growing segment of the student loan market.
That’s not exactly how you want to feel younger as you approach retirement. It means that millions of Americans now carry a hefty burden that threatens their ability to enjoy financial freedom in their golden years.
Older Americans taking on more student debt
Among the contributing factors to this troubling trend:
•The increase in parents or guardians cosigning on their children’s private undergraduate student loans, up from 74% in the 2008–2009 academic year to 93% in 2018–2019.
•The rise in the number of adults over the age of 25 going back for further education to bolster their job prospects in a challenging market.
Whether they have taken on this debt for themselves or for their children, many older Americans now find it very difficult to pay off these balances. While it is more common to worry that young people may not be able to save adequately for a retirement still two or three decades away because of their student loan debts, more older workers are now putting their retirement at risk with no time left to catch up.
To be able to go back to school, many chose to take out loans that often did not provide a good return on investment. Meanwhile, the Brookings Institution reports that “the average annual borrowing amount for parents has more than tripled over the last 25 years, from $5,200 a year in 1990 (adjusted for inflation) to $16,100 in 2014.”
Student debt affects financial wellness in retirement
The consequences of this mushrooming debt burden are significant. Defaults on student loans have resulted in an increasing number of older Americans having their Social Security benefits garnished. When you fall behind on payments for federal student loans, the government can make up what you owe by taking automatic deductions from your Social Security check. In fiscal year 2015, an estimated 114,000 borrowers aged 50 and older had their benefits offset to repay defaulted federal student loans, totaling approximately $171 million.
For younger workers, this tale of crushing student loan debt will sound familiar. Most millennials have no money set aside for retirement, and those who do save are not saving nearly enough: According to the National Institute on Retirement Security, 66% of working millennials have nothing saved for retirement and only 5% are saving adequately.
The LIMRA Secure Retirement Institute found that, when compared with their peers without debt, millennials entering the workforce with $30,000 in student loan debt risk ending up with $325,000 less in retirement. Given that the average student debt in 2015 was $33,000, this suggests that many graduates will face significant difficulties building their retirement nest eggs.
Student debt reduces the ability of millennials to save for the day decades from now when they stop working. Unfortunately, we already see the retirement of today’s workers being threatened because of rising debt burdens they are carrying into old age.
Solutions to the student debt crisis exist
Policy makers have taken note of the growing student loan crisis, and a recent report by the Aspen Institute highlights the range of solutions being proposed, including canceling some or all of the outstanding debt or expanding the use of income-driven repayment plans. Another suggested option for older workers would be to end Social Security offsets that are increasingly jeopardizing critical retirement income.
While much attention has focused on the impact of student debt on millennials, any policy reforms must consider the full scale of the problem, including the role it plays in the lives of older Americans.
American consumers have a long history of acquiring debt and failing to save. Whether buying a first home or a new car, borrowing today and worrying about paying it back tomorrow is not new. What is new, however, is the volume of debt, the share held by older Americans, and the increasingly dominant role of student loan debt. Investments in education have historically been a driver of professional success, but now the associated debt burden has clouded the personal financial prospects for many Americans.
Although student debt has long been a concern for 20- and 30-somethings, it now represents a significant risk for Americans over age 60. The prospects for enjoying a retirement as prosperous as that of their grandparents seems dim for most millennials, and many of their parents seem poised to face even more imminent challenges.
Left unaddressed, the student debt crisis will leave many older Americans feeling 30 years younger because they are 30 years poorer.
Source : MTV
