Borrowers over 50 with student loan debt

Student loan debt doesn’t just hold young people back. It’s a growing problem for seniors, leading many into default and threatening retirement plans for some. In fact, people aged 60 or over are the fastest growing age group in the world student loan market, according to the Consumer Financial Protection Bureau.

According to Federal Reserve Bank of New York, Roughly 23% of student debt was owned by people 50 or older as of 2021.

An analysis from the CFPB found that 39% of consumers aged 60 or older with student loan debt failed to take care of healthcare needs such as prescription medications, doctor visits, and dental care because they could not afford them, compared to 25% of older consumers without a loan. Student. According to Biden administrationa third of seniors with student debt were in default.

“This is a really big problem,” says Eric Kroll, a certified financial planner whose company is called. Student loans over 50a subsidiary of Hilltop Financial Advisors, “This delays and destroys dreams of retirement and adds a lot of stress and anxiety to someone. People in this age group who have high balances, when I speak to them, are always embarrassed by the amount of loans they have, and sometimes It comes with a sense of desperation.”

Paul S. agreed. Garrard, founder and president of PGPresent, states: “I would say (it’s) quite a challenge.” He said it’s a mix of older borrowers still paying their own loans as well as loans they borrowed on behalf of their children, known as Parent PLUS loans, or even private loans they’ve agreed to. PG Presents is a consulting firm that provides independent student loan advice.

“Parents owe a lot to their children’s education,” said Heather Jarvis, an attorney who specializes in student loan law and executive director of Fosterus, a nonprofit that runs student loan repayment assistance programs. Jarvis said 3.7 million families borrowed over $104 billion in Parent PLUS loans used to help pay for their children’s college education.

It is not clear how many older borrowers took out their own education versus the Parent PLUS loans they took out on behalf of their children. From his experience, Kroll said, “It really does appear that the vast majority of this group have loans because of putting their children in school. About 90% of the borrowers in this group are because of child loans.”

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

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

Student debt an urgent issue for older borrowers

Garrard said that debt is a pressing issue for older borrowers because “respectfully, younger borrowers are not simply faced with the compelling need to plan for retirement.”

The government’s suspension of student debt payments due to the pandemic, he said, has put some older borrowers in a bind by shortening the time they have to repay their debts. “While the CARES Act (and its continued expansion) has helped many borrowers, it has also contributed to complacency among many who have shown no interest in their debt since maturity that continues to be deferred at no cost to the borrower,” he said.

It could have been worse though. Until 2021, older borrowers faced the possibility of having some of their Social Security benefits forfeited if they defaulted on their student loans. The government stopped these types of groups last year. However, it is possible to resume.

This is particularly troubling because “government data shows that benefits drive older adults into or into poverty,” said Ben Kaufman, director of research and investigations at the Student Borrower Protection Center.

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

Michael and Patricia can’t plan for retirement

Two of Kroll’s clients, Michael and Patricia, are a married couple, both 53, and live in Milwaukee. Michael is a custom building contractor. Patricia, the nursery manager. We do not use their last names to protect their financial privacy. They have $141K in student loan debt to their eldest son, who just graduated last year. Their youngest son starts college in the fall, and they plan to take out loans for his education as well.

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

While Michael said his eldest son would take responsibility for repaying the loans they took out for him, Michael added that he and his wife “honestly can’t even think about retirement without getting close to the goal line of repaying the loans.”

Loophole for parent borrowers

Paying off Parent PLUS loans can be a complex endeavor. And according to Kroll, knowing the vulnerabilities can make all the difference. “You have a lot of complications in the system,” Kroll said. “It’s by no means simple, so it’s really hard to understand.” Moreover, “You have loan service personnel in the past who gave poor and misleading information. Now the government is trying to fix the mistakes.”

The big issue is that the government offers five different types of Income-Based Payment PlansIDRs, or IDRs, are designed to allow borrowers to repay their loans at a rate based on their income and to receive relief once they have made the required number of payments over a specified number of years.

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

Then there is the income-based repayment plan, known as the IBR. According to the Department of Education, for an IBR plan, the monthly payment is 10% of the discretionary income for people who took out new loans on or after July 1, 2014. For people with old loans, the monthly payment amount under the IBR plan is 15 percent of the discretionary income. .

Parent PLUS borrowers are eligible for the more expensive ICR, but not the other less expensive options. To become eligible for an ICR, Kroll explained, a Parent PLUS borrower must do so loan consolidation In a direct student loan.

However, there is a trick that can open the door to other payment options. Kroll said that if the loans are consolidated twice, they will not be considered Parent PLUS loans, making them eligible for other payment plans.

In order to do this, the borrower must have more than four Parent PLUS loans. This is common for people who, for example, take out a different loan for each year of their children’s education, Kroll said. So they can combine two loans into one direct loan and then combine the other two loans into another direct loan. Then, when the two direct loans are combined, the new direct loan becomes eligible for more favorable repayment plans.

Will Biden’s Loan Forgiveness Help Senior Borrowers?

President Biden He announced that his administration would forgive $10,000 of student loan debt for borrowers who meet income requirements. This includes Parent PLUS borrowers. In addition, borrowers who received Pell grants could receive a total of $20,000 in relief under the Biden plan.

Kroll noted that older borrowers are less likely to meet the income requirements for repayment. The maximum is $125,000 in annual income for individuals and $250,000 in annual income for married couples. People who earn more than that are not eligible for forgiveness. “My guess is that a higher proportion of this group of the total population would be on the wrong end of the income line for this,” Kroll said.

Management is also renewing payment plans to make them less expensive and more widely available. But it is not yet clear 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 minimum for any loans.” Since he and his wife work with Kroll, he said, their youngest son’s loans “will be structured in a way that makes more sense because now we know how the machine works and which levers open up the options that apply to our family.”

Kroll’s advice to older borrowers: “You’ll have to structure your loans properly. They should be direct loans and not additional principal loans. If the loans are from your own school, there isn’t much to do here. If you get loans for your children, you need to do one round on the Less than merging and in a perfect world, two rounds of merging.”

The biggest mistake Kroll said he sees is assuming you have to pay the balance in full. “Look at the different tolerance programs first,” he said. “Also, once everything is combined, you limit your repayment options.”

Kaufman added, “People who are disabled or who are no longer able to work may be entitled to a disability. You only use Who is this And ask your doctor to certify that you cannot engage in a “large profitable activity” (which is more or less a large activity that can be used to pay off your loans). “

Jarvis said eligible borrowers should be aware of Public Service Loan Forgiveness The waiver, which expires October 31. The exemption allows payments that were previously excluded to be counted under the public service loan forgiveness. PSLF is a program that facilitates reimbursement for persons holding eligible positions in the public service. according to Education DepartmentDirect PLUS loans are eligible for PSLF based on the qualifying employment of the parent who received the loan.

Jarvis added that people should be prepared to apply to cancel Biden’s $10,000 or $20,000 loan so they don’t miss out. management says The online form will be available by early October, with the application deadline December 31.

Finally, Kaufman said, “Seniors should look out for scams. Scammers often try to target seniors. Never pay a company to file student loan paperwork (including an income-based repayment application) on your behalf. All can be done It is free of charge by the service provider.”

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