Financial advisors may be surprised to learn that the fastest growing age segment of student loan borrowers are those 60 and older, and nearly 40% of student loan borrowers 65 and older were in default on student debt in 2015.
These are just two of the startling statistics disclosed in a new report from the Consumer Financial Protection Bureau.
The loans are both public and private, and about three-quarters were taken to finance a child’s or grandchild’s college education as a borrower or co-signer. The remaining portion were used for the education of the borrower or his or her spouse.
No matter who the beneficiary is, these loans are a burden for seniors in or near retirement, many of whom also hold other debt, such as a mortgage, auto loan or credit card debt.
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For example, heads of households aged 50 to 59 who had outstanding student loan debt saved less for retirement that their counterparts who didn’t have such debt, according to Federal Reserve stats quoted in the report.
In 2013, the median 401(k) savings balance was $65,000 for those consumers without student loans but $55,000 for those with such loans. The gap was even greater for IRAs: a median $56,000 balance for those without student loans versus just $31,000 for those with student loans.
Advisors usually counsel clients to make saving for retirement a priority over saving for college, but having outstanding student debt apparently can also impact retirement saving.
“Loans taken out by parents can be a major impediment to retirement, and should generally be a last resort if not avoided altogether,” says Matt Sommer, vice president and director of the retirement strategy group at Janus Capital Group.
Co-signing a student loan is also a risk for parents and grandparents, says Sommer. He suggests others ways to finance a child’s college education including choosing a community college for at least for the first two years of a college education as well as work study and student loans owed by only the student with no co-signer.
The latter are usually more available with government, rather than private, loans but there are limits to what can be borrowed.
The impact of student debt on retirees already collecting Social Security was even greater than the impact on younger seniors. Forty thousand seniors had their Social Security benefits cut in 2015 to repay a federal student loan, up from just 8,700 10 years earlier, the CFPB reports.