Older Americans are the fastest-growing population of student loan borrowers, and according to a Consumer Financial Protection Bureau study, 2.8 million Americans over age 60 owe money on student loans. In many cases, those loans were taken out to pay for their own education, but increasingly, the debt is due to co-signing student loans for children or grandchildren.
Regardless of why older Americans have borrowed this money, more and more of them are struggling to make their student loan payments. Since 2005, the number of older Americans paying their student loans late, or missing payments altogether, has increased. As a result, the proportion of delinquent student loans held by older Americans has climbed to 12.5% from 7.5%.
As of 2015, 37% of Americans over age 65 are in student loan default, and for perspective, that's only the case for 17% of borrowers under age 40, according the Government Accountability Office. That's a big problem for retirees, because if you fall behind on your federal student loan payments, the federal government can garnish your Social Security income by as much as 15%.
It's not too surprising that seniors are struggling to make their student loan payments. The majority of older Americans enter retirement with limited retirement savings, and Social Security only replaces about 40% of a person's pre-retirement income.
In 2017, the average retired worker is collecting just $1,360 per month in Social Security, and according to the Social Security Administration, over 40% of single recipients count on that income for 90% or more of their total retirement income. Considering the average retiree spends more than twice that amount per month, it's easy to see why so many people are having difficulty making their payments.
Going back to school? Know your options
If you're a worker considering going back to school, make sure you shop around before enrolling in a program and taking out student loans. Higher education costs vary widely, and pricey schools can result in significantly higher student loan debt in retirement.
According to the College Board, the average cost of a two-year community college in the 2016/2017 school year was $3,520. For comparison, a four-year, in-state, public school cost $9,650, and a private four-year school cost $33,480. For-profit colleges cost an average of $16,000, but they're a risky option because they have lower graduation rates than other schools.
Oftentimes, community college credits are transferable to state colleges, so thousands of dollars can be saved by starting out there and then completing a degree at a four-year school. As a result, consider the programs available from those schools first.
Similarly, I usually recommend against co-signing loans for adult children or grandchildren, but if you feel obligated to do so, make sure they consider lower cost options before agreeing to help out.
Already up to your eye-balls in student loans?
If you're in or about to enter retirement and you're concerned you might not be able to pay your student loans, consider consolidating your loans to reduce your monthly payment.
Consolidation increases the number of years you'll have to make payments, so the total in lifetime payments on your loans will increase, but it can bring your monthly payments down to a more manageable level. If you have equity in your home, an equity loan might be an even better option. Equity loans often offer better interest rates than student debt consolidation loans, and their tax benefit could be better too.
If you're disabled, you might qualify for federal student loan forgiveness. If Veteran's Affairs has determined you're unemployable due to a service-connected disability, or you're receiving Social Security disability payments, or your physician can certify you as permanently disabled, then you can file for a federal total and permanent discharge.
If you're not disabled, at risk of default, and you can continue working, it may be best to delay collecting Social Security as long as possible. Doing so increases your monthly Social Security income, and that could give you enough money to cover your obligations. If you wait to claim until after reaching your full retirement age, you'll receive delayed retirement credits that increase your Social Security by 8% for every year you wait, up to age 70. Therefore, someone with a full retirement age of 66 who waits until age 70 would get 132% of their full retirement age benefit.