It’s an old joke that’s quickly becoming reality for many student loan borrowers: “I’ll be paying off my student loans until I die.”
During the past decade, there’s been a stunning rise in student loan debt owed by older Americans. The number of Americans aged 60 or older with one or more student loans quadrupled from 2005 to 2015, the Consumer Financial Protection Bureau revealed last week. The average debt load on that group has swelled from $12,000 to $23,500. And there has been a near five-fold increase in the number of retired Americans who see their Social Security checks auto-deducted to pay off federal student loans in default.
Ken Stumpf, a 70-year-old borrower from Colorado, lays out the stark reality he and his wife face.
“We are both buried from our own student debt. Nothing to do but pay until we die,” he said.
Stumpf spent 33 years in the U.S. Army, mostly working in the Signal Corps as an information technology specialist. His mixture of federal and private student loans are current, but there’s no chance he’ll ever pay them off. In the mid-1990s, he went to graduate school to earn a master’s in Recreation and Park Administration. He borrowed $70,749 to pay for that degree. After a combination of deferrals and minimum payments, today his monthly student loan bill is a fairly reasonable $227. But his outstanding balance is $81,000 — more than he initially borrowed.
Stumpf’s wife, who is 65, is a little worse off. She borrowed $71,175 to get her college degree back in 1999. Her payment is $332; the balance is now $95,844.
“We both went back to school later in life to try to improve our marketability and get better jobs. Worked for me, sort of, not so much for her,” Stumpf said.
He’s philosophical about the debt.
“It drives us crazy … But I think we both realize that, short of winning the lottery, we won’t ever pay off $176K in student loans. And it did help me get into a career field that isn’t going away for a while,” he said. At age 70, he’s still working 25 hours a week in IT. “There are a whole lot worse off than us,” Stumpf said.
The New Normal
A new report issued by the Consumer Financial Protection Bureau finds that this may be the new standard. The share of all student loan borrowers that are age 60 and older increased from 2.7% to 6.4% between 2005 and 2015, the bureau said.
“It is alarming that older Americans are the fastest growing segment of student loan borrowers,” CFPB Director Richard Cordray said in a press release.
Older student borrowers have special problems, some of which are obvious. Incomes usually drop in retirement and 401K balances start to come under pressure, while health care costs rise. The bills can pile up. In 2013, for example, 63% of older student loan borrowers also owed mortgage debt, 67% owed credit card debt and 45% owed auto loan debt, the CFPB said. (You can see how your current debts are affecting your credit by viewing two of your free credit scores, updated every 30 days, on Credit.com.)
Still, a shocking number of older Americans aren’t paying for their own schooling, like Stumpf – they are paying off kids’ and grandkids’ loans. Around 73% of student loan borrowers age 60 and older told the CFPB that their student debt is owed for a child and/or grandchild.
The wear on finances of older Americans is showing. The proportion of delinquent student loan debt held by borrowers age 60 and older increased from 7.4% to 12.5% from 2005 to 2012; and nearly 40% of federal student loan borrowers age 65 and older are in default. Social Security benefits being “offset” to repay a federal student loan increased from about 8,700 to 40,000 borrowers from 2005 to 2015, the CFPB said.
It should come as no surprise that older Americans, when deciding which bills to pay and which to postpone, are sometimes neglecting their own health care. In 2014, for example, 39% of consumers age 60 and older with a student loan said that they skipped health care needs like prescription medicines, doctors’ visits and dental care. Only 25% of older consumers without a student loan did the same, the CFPB said.
Another problem facing older borrowers: Available options for relief, such as income-driven repayment, can be confusing. (You can go here to learn more about income-based and other student loan repayment options.) And the CFPB warns that loan servicers don’t always make getting help easy. Its report found several shortcomings in servicer treatment of older borrowers. Per the press release, a survey of complaints filed with the CFPB found older borrowers complain that servicers are:
- Delaying or prohibiting enrollment in income-driven payment plans: Some federal student loan borrowers report that servicers are not advising them that they may have their loan payment amounts reassessed under an income-driven plan when their income changes. Instead, some consumers on fixed or reduced incomes report being placed in plans designed for borrowers with growing incomes. Older borrowers in default report that their Social Security benefits are offset to repay a federal student loan — despite their right under federal law to cure their default and seek payment relief under an income-driven plan.
- Incorrectly applying cosigner payments to other loans owed by the primary borrower: Generally, servicers apply payments received across all serviced private student loans owed by the primary borrower. Some cosigners complain that their payments appeared short because they were spread out over all of the primary borrower’s private student loans. This practice can result in servicers charging cosigners late fees and interest charges, as well as reporting late and missed payments to credit reporting companies.
- Failing to provide borrowers access to loan information: Some co-signers complain that they are unable to monitor the student loan that they co-signed because loan servicers did not respond to their requests for help in accessing account information. Others report that by the time the servicer sends the cosigner a notice of missed payments, the amount due has accrued fees and penalties. Some private student loan borrowers say they did not receive notice prior to a negative report to consumer reporting companies.
- Threatening to offset private student loan borrowers’ federally protected benefits: Certain federal benefits, like Social Security benefits, are generally protected from collection for defaulted private student loans. Some older borrowers report that when the primary borrower fails to pay, servicers and debt collectors threaten to collect protected benefits.
Is Help on the Way?
“Many of these older Americans are helping to finance their children’s or grandchildren’s education while living on a fixed income,” Cordray said. “We are concerned that student loans are contributing to financial insecurity for many older Americans and that student loan servicing problems can add to their distress.”
The CFPB is advocating for new rules that would protect student loan borrowers; these could ease the burden on the over-60 student loan debtor group. The rules would make income-driven payment plans easier to access and maintain, for example.
But for now, older consumers are on the hook for an estimated $66.7 billion in student loans, and long-term solutions for borrowers like Stumpf seem far, far away.
“At our age, we know we will pass before they are paid,” he said.