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Student debt threatens retirement for swelling numbers

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An exploding number of households headed by older Americans are carrying federal student debt, according to an analysis by the Government Accountability Office. 

That can mean serious consequences to the retirement security of these people, because the government can recover unpaid loans from the borrower’s Social Security retirement, disability or survivor benefits

The GAO report says that from 2002 through 2013, the overall number of individuals whose Social Security benefits were adjusted to pay for loan debt increased five-fold, from roughly 31,000 to 155,000. Among those 65 and older, the number of Americans who saw their Social Security benefits adjusted to cover outstanding student loan debt grew from 6,000 to 36,000. 

While older Americans are much more likely to carry mortgage and credit card debt into retirement, the number of older households carrying student debt grew to 4 percent in 2010, up from 1 percent in 2004. 

That’s compared to the 24 percent of households, or 22 million, headed by someone 65 or younger with student debt. 

Seemingly small in percentages, the actual dollar amount of older Americans’ student debt is significant. It grew from $2.8 billion in 2005 to about $18.2 billion in 2013. 

And older Americans are defaulting on student loans at a much higher rate than their younger counterparts. About 27 percent of student loans held by individuals 65 to 74 were in default in 2013, while more than half of those held by those 75 or older were in default, the GAO found. 

By comparison, 12 percent of student loans held by those aged 25 to 49 were in default. 

“Student loan debt can be especially problematic because unlike other types of debt, it generally cannot be discharged in bankruptcy and can, in the event of default on federal student loans, lead to reductions in certain federal payments such as Social Security benefits,” wrote the report’s authors.

The GAO study, which was requested by the Senate Committee on Health, Education, Labor and Pensions, notes that overall debt held by those in or nearing retirement has increased significantly over the past 20 years.

And that, of course, has affected the retirement security of many.

The share of Americans over age 65 with debt increased from 30 percent in 1998 to 43 percent in 2010. The median amount of debt in that time increased 56 percent, from about $13,600 to $21,200.

Perhaps most tellingly, overall debt ratio — total debt as a percentage of household assets — rose from 6.4 percent to 13 percent.