Baby Boomers in Student Debt?

ONE GENERATION OF AMERICANS OWES $86B IN STUDENT DEBT. ITS MEMBERS ARE ALL 60 YEARS OLD OR MORE

Seniors with student debt? Surely that is some sort of a mistake. No, it’s not. A recent article in the Wall Street Journal (WSJ) shined a light on a little known and growing problem. Seniors that have taken on student debt. Some took out loans to help pay for their children’s college tuition and while the child may be out of school for years, the debt remains. Others, in the wake of the most recent recession, took out student loans while trying to reinvent themselves. They needed new skills to make themselves more attractive to potential employers. Many of those dreams withered on the vine but again, the debt remains.

The statistics are daunting. According to the WSJ, student loan borrowers in their 60s owed an average of $33,800 in 2017. That is up 44% from just ten years ago. Data compiled by TransUnion shows that total student loan debt rose 161% for people aged 60 and older over a period of just seven years. And year by year, the numbers just seem to keep on getting darker.

In the good old days, average debt levels peaked for families headed by folks aged 45-54. Then, as children graduated from college or left the nest and older Americans’ mortgages got paid down, their debt levels decreased. Thus was borne the familiar bromide that your expenses will decrease after retirement, leaving seniors free to enjoy their golden years. Now, for many Americans, student debt has turned their lives upside down. They are working longer, holding onto positions that younger (more cost effective) adults might receive. They’re relying on credit card debt and personal loans to pay for basic necessities. People 65 and older account for a growing share of U.S. bankruptcy filings. However, unlike most consumer loans, student debt is rarely discharged in bankruptcy. And if the seniors or their kids do default, their Social Security payments can be garnished. If they are not currently employed, if Social Security is a significant (or their only) source of income, the garnishment of their Social Security benefits cuts many seniors to the bone.

In the years after the great recession of 2008, banks and other student lenders tightened their underwriting standards requiring more parents to sign onto their children’s student loans. Cosigning makes the parents equally responsible for paying back the loan, which leads to a double edged sword for the parents: they now have reduced credit scores and the debt diminishes their ability to borrow other money in case of an emergency or if they or their child misses a payment.

While federal loans still account for the majority of student debt, the private market for student loans has been growing. The federal government caps the dollar amount of loans that undergraduate students can borrow. No such caps exist with regard to the debt that the parents can take on. And since all savvy financial institutions “follow the money”, they have increased their focus on parents and have been marketing directly to them. For parents with higher credit scores these private lenders offer the possibility of lower interest rates. They will also allow the parents to take on the entire debt themselves; their children are not required to co-sign the loan. While this spares their children the burden of taking on any of the debt, it also places all of the debt on the shoulders of the parents.

TransUnion data reveals that U.S. consumer debt for folks 60 and older totals about $615B. In 2017, it was comprised primarily of debt related to credit cards, auto loans, personal loans and student debt. Since 2010 that represents an 84% increase, the biggest increase of any age group.

So the problem of student debt for our aging population should be of real concern. How this debt will be serviced as our population continues to age and their fixed income can no longer support their financial obligations is anybody’s guess. Will this ultimately result in a tsunami of defaults as boomers face future harsh economic realities? Stay tuned.