Whenever you read about the country’s $1.4 trillion student loan crisis, it’s usually in the context of how debt is making it hard for millennials to get married, buy homes or even just move out of their parents’ basements.
Truth is, student loan debt isn’t just about young people failing to launch. According to the latest government data, federal loan balances for Americans 50 and older grew at a faster rate over the past few months than it did for younger people. In first quarter 2018, older borrowers carried nearly $262 billion in outstanding balances — that’s up from $244 billion in second quarter 2017.
So why did older Americans see this $18 billion jump? For one, these borrowers aren’t only shouldering their own college debt, they’re also co-signing loans or taking out separate parent PLUS loans to help pay for their kids’ or grandkids’ educations. Plus, they aren’t immune to the same economic factors that affect younger student loan borrowers, such as stagnant wages that make it hard to pay down debt, or changing job-market trends that favor advanced degrees for higher-paying positions.
WHY THE DEBT BURDEN IS SO BAD FOR OLDER BORROWERS
There’s one big reason why the trend of growing student loan balances for those 50-plus is so disconcerting: retirement.
According to a study by the Consumer Finance Protection Bureau, Americans age 50 to 59 who have student loans have saved $10,000 less in their 401(k)s and $25,000 less in their IRAs than those who don’t have student loans. And almost 40 percent of borrowers 65 and older are in default — especially troubling considering the government can garnish Social Security benefits if they don’t get their money back.
So if you’re nearing retirement, it’s important to have a plan for paying down your debt — or talking through a backup plan with your children if they can’t pay for theirs. Here are some things to keep in mind if you’re still dealing with student loans, either yours or your kids’.
Know the risks of co-signing a loan. If you’re thinking of helping out your college co-ed to be, remember there could be consequences for your own money if you decide to co-sign a loan for them. For instance, your own credit will be on the line — and you’ll be on the hook for the debt if your child defaults or misses payments.
Know what your repayment options are. If you or your child are having a hard time making payments, look into extended or income-driven repayment plans, which base your payment size on how much money you make. Parent PLUS loans also have different repayment options, but they aren’t as flexible as those of federal direct loans. If you co-sign a loan, consider insurance. Both life and disability insurance can help provide the funds to repay a loan in the event a borrower dies or becomes disabled. Think of it as a safety net so that your financial security isn’t at risk if the unthinkable happens.
If you co-sign a loan, consider insurance. Both life and disability insurance can help provide the funds to repay a loan in the event a borrower dies or becomes disabled. Think of it as a safety net so that your financial security isn’t at risk if the unthinkable happens.