Borrowers Over 50 With Student Loan Debt

Student loan debt is not just holding back young adults. It’s increasingly an issue for older people, sending many of them into default and threatening retirement plans for some. In fact, people aged 60 and older are the fastest growing age segment of the student loan market, according to the Consumer Financial Protection Bureau.

And, according to the Federal Reserve Bank of New York, almost 23% of student debt was held by people aged 50 and older as of 2021.

An analysis from the CFPB found that 39% of consumers aged 60 and older who have student loan debt failed to take care of health care needs such as prescription medicines, doctors’ visits, and dental care because they couldn’t afford it, compared to 25% of older consumers without a student loan. And according to the Biden administration, a third of seniors with student debt was in default.

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“This is a really big issue,” says Erik Kroll, a certified financial planner whose company is called Student Loans Over 50, a subsidiary of Hilltop Financial Advisors, “This delays and destroys retirement dreams and adds a lot of stress and anxiety for someone. People in this age group with high balances, when I talk to them, are almost always embarrassed by the amount of loans they have, and it sometimes comes with a sense of hopelessness.”

Paul S. Garrard, founder and president of PGPresents agreed: “I would say (it’s) a significant challenge.” He said it’s a combination of older borrowers still paying their own loans and also loans they borrowed on behalf of their children, known as Parent PLUS loans, or even private loans on which they cosigned. PG Presents is a consulting company that offers independent student loan counseling.

“Parents owe a lot for their children's educations,” said Heather Jarvis, an attorney specializing in student loan law and executive director of Fosterus, a nonprofit organization operating student loan repayment assistance programs. Jarvis said 3.7 million families borrowed upward of $104 billion in Parent PLUS loans used to help pay for their children’s undergraduate educations.

It’s not clear how many older borrowers have loans from their own education versus Parent PLUS loans they took out on behalf of their children. Kroll, said, in his experience, “it really seems like the vast majority of this cohort has loans because of putting their kids through school. About 90% of my borrowers in this cohort are due to loans for kids."

A further complication for older borrowers, Jarvis noted, is that they tend to have higher medical bills, complicating their efforts to repay the loans.

According to the Department of Education, 2.5 million borrowers aged 62 and older owed a total of $101.4 billion in student loan debt as of the second quarter of 2022, for an average of $40,560 per borrower. Another 6.4 million borrowers aged 50 to 61 owed a total of $286.6 billion, an average debt of $44,781.

Student Debt an Urgent Matter for Older Borrowers

Garrard said the debt is a pressing issue for older borrowers because, “respectfully, younger borrowers are simply not faced with the urgency of planning for retirement.”

He said the government’s pandemic-induced suspension of student debt payments has, ironically, put some older borrowers in a bind by shortening the time they have to repay their debt. “While the CARES Act (and its continued expansion) has helped many borrowers, it has also contributed to complacency among many who have simply not been paying any attention to their debt since the due date keeps getting pushed back and at no cost to the borrower,” he said.

It could be worse, though. Until 2021, older borrowers faced the potential of having some of their Social Security benefits seized if they went into default on their student loans. The government stopped these kinds of collections last year. However, it’s possible they may resume.

This is especially concerning because “The government’s own data show that benefit offsets push seniors into or further into poverty, ” said Ben Kaufman, director of research and investigations for the Student Borrower Protection Center.

Older borrowers default at higher rates than younger borrowers, according to a presentation by the National Center on Law and Elder Rights. Default rates are 69% higher for borrowers aged 50 to 64 and 116% higher for those 65 and older, compared to borrowers younger than 50,

Michael and Patricia Can’t Plan for Retirement

Two of Kroll’s clients, Michael and Patricia, are a married couple, both aged 53, who live in Milwaukee. Michael is a custom building contractor; Patricia is a preschool director. We’re not using their last names to protect their financial privacy. They have $141,000 in student loan debt for their older son, who just graduated last year. Their younger son starts college in the fall, and they plan on taking out loans for his education as well.

Michael said he was surprised by “the dizzying complexity of rules and insensibilities that make up the current student loan structure. If you don't have access to a CFP (certified financial planner) who knows that landscape, it's like having a broken compass on a cloudy day.”

While Michael said his older son will assume responsibility for making payments on the loans they took out for him, Michael added that he and his wife “honestly can't even think of retirement without getting closer to the goal line of having the loans paid off.”

A Loophole for Parent Borrowers

Paying back Parent PLUS loans can be a complicated endeavor. And knowing the loopholes can make all the difference, according to Kroll. “You have a ton of complexities in the system,” Kroll said. “It’s not simple by any means, so it’s really hard to understand.” On top of that, “You have loan servicers in the past who have given poor and misleading information. Now the government is trying to fix wrongs.”

A big issue is that the government offers five different kinds of Income-Driven Repayment Plans, or IDRs, which are designed to let borrowers repay their loans at a rate that is based on their income and obtain forgiveness once they’ve made the required number of payments over a set number of years.

The plans have different rules, some more favorable to borrowers than others. The most expensive plan is known as the Income Contingent Repayment Plan or ICR. This plan caps payments at 20% of discretionary income and ends the repayment period at 25 years.

Then there’s the Income-Based Repayment Plan, known as an IBR. According to the Education Department, for the IBR Plan, the monthly payment is 10% of discretionary income for people who borrowed new loans on or after July 1, 2014. For people with older loans, the monthly payment amount under the IBR Plan is 15 percent of discretionary income.

Parent PLUS borrowers are eligible for the more expensive ICR, but not the other, less-expensive options. And to become eligible for an ICR, Kroll explained, the Parent PLUS borrower has to consolidate the loan into a direct student loan.

However, there’s a trick that could open the door to other repayment options. If the loans are consolidated twice, Kroll said, they are no longer considered Parent PLUS loans, making them eligible for other repayment plans.

In order to do this, the borrower must have more than four Parent PLUS loans. Kroll said this is common for people who, say, take out a different loan for every year of their child’s education. So they could consolidate two loans into one direct loan and then consolidate the other two into another direct loan. Then when they consolidate the two direct loans, the new direct loan is eligible for the more favorable repayment plans.

Will Biden’s Loan Forgiveness Help Older Borrowers?

President Biden has announced his administration will forgive $10,000 in student loan debt for borrowers who meet income requirements. This includes Parent PLUS borrowers. In addition, borrowers who received Pell Grants can get a total of $20,000 in forgiveness under the Biden plan.

Kroll noted that older borrowers are less likely to meet the income requirements for repayment. The limit is $125,000 in annual income for individuals and $250,000 for married couples. People who make more than that are not eligible for forgiveness. ”I suspect,” Kroll said, “that a higher proportion of this group than the overall population will be on the wrong end of the income limits for this.”

The administration is also revamping repayment plans to make them less expensive and more broadly available. But it’s not clear yet whether the repayment changes will apply to Parent PLUS loans.

What Should Older Student Loan Borrowers Do?

Michael, the Milwaukee borrower we spoke with, urged other parents to contact a certified financial planner “before you begin the process of signing the bottom line on any loans.” Because he and his wife are working with Kroll, he said, their younger son’s loans “will be structured much more sensibly because we’re now aware of how the machine works and which levers open up options that apply to our family.”

Kroll’s advice for older borrowers: “You'll have to structure your loans properly. They need to be direct loans and not Parent PLUS loans. If the loans are from your own schooling, there's less to do here. If you took out loans for your kids, then you need to do at least one round of consolidation and in a perfect world, two rounds of consolidation.”

The biggest mistake Kroll said he sees is assuming you have to pay off the entire balance. “Look into the different forgiveness programs first,” he said. “Also, once you consolidate everything, you limit your repayment options.”

Kaufman added: “Those who are disabled or otherwise no longer able to work may be entitled to disability discharge. You just use this form and have your doctor attest that you can't engage in ‘substantial gainful activity’ (which more or less means major activity that could be used to pay off your loans).”

Jarvis said eligible borrowers should be mindful of the Public Service Loan Forgiveness waiver, which ends Oct. 31. The waiver allows payments that were previously excluded to be counted toward public service loan forgiveness. PSLF is a program that eases repayment for people who hold eligible public service employment. According to the Department of Education, Direct PLUS Loans are eligible for PSLF based on the qualifying employment of the parent who took out the loan.

Jarvis added that people should be ready to apply for the Biden $10,000 or $20,000 loan cancellation so they don’t miss the opportunity. The administration says an online form will be available by early October, with a deadline of Dec. 31 to submit applications.

Finally, Kaufman said, “Seniors should be on the lookout for scams. Scammers frequently try to target seniors. Do not ever pay a company to file student loan paperwork (including the application for income-driven repayment) on your behalf. That can all be done for free by your servicer.”