When one typically thinks of individuals facing financial hardship due to student loan debt, retirees don’t usually jump to mind. But a recent government study reveals that the number of Americans that carry student loan debt into their retirement has increased by at least 400 percent in the past decade.
This fall the federal Government Accountability Office (GAO) published its analysis of senior Americans and student loan debt. The report title pretty much summed up its findings: “Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Retirees.”
The issue was also the topic of discussion of a recent hearing by the Senate Special Committee on Aging, at which several Congressmen noted that the problem has not gotten the attention that it deserves.
“While many may think of student loan debt for just a young person, increasingly that’s not the case,” Senator Bill Nelson (D-FL) remarked.
How serious is the problem? The GAO is quick to acknowledge that retiring Americans are much more likely to carry other financial burdens into retirement. Still, more than 700,000 households headed by Americans 65 or older now carry student debt. So for many Americans the problem is very real, and the numbers affected are on the rise.
“Compared to student loan debt, those 65 and older are much more likely to carry other types of debt,” the GAO noted in its report highlights. “For example, about 29 percent carry home mortgage debt and 27 percent carry credit card debt. Still, student debt among older American households has grown in recent years. The percentage of households headed by those aged 65 to 74 having student debt grew from about 1 percent in 2004 to about 4 percent in 2010.”
To put the issue in further context, the GAO says that while those 65 or older account for a small fraction of the total amount of outstanding federal student debt in this country, the accumulative amount of that debt has grown from approximately $2.8 billion in 2005 to $18.2 billion in 2013.
And older Americans are becoming indebted and struggling to repay student loans at much higher rates than younger individuals.
Advising Seniors on How To Manage the Debt
Not all financial planners and retirement advisors may have encountered clients with student loan debt yet, but with the numbers steadily on the rise, the odds are they you will.
According to the GAO, there are a number of reasons why Americans might still be facing student loan debt at retirement age. In the majority of cases (70 to 80 percent, says the GAO), the debt is from loans taken out by the individual for graduate or continuing education courses required for their careers. In another 20 percent of cases, the debt is due to loans they took out for their children or other dependents.
As Karla McAvoy, a financial advisor with HC Financial Advisors, Inc., in Lafayette, CA, points out, in some cases the individual never expected that the student loan debt in question would be their burden – they were co-signers to someone else’s loan.
“I’ve been thinking about it a lot, and it almost makes my stomach turn,” McAvoy says of the idea that people could still be faced with student loan debt at that late stage in life. “They often will get themselves into this situation by co-signing a loan for a family member, and we always caution our clients against that because of exactly this type of situation — where the loan doesn’t get paid, it falls into their lap to be responsible for, and they’re at a point in life when they really don’t have the time or the resources to manage it.”