The New York Times recently reported that the number of older Americans with student loan debt has almost tripled in the past nine years from 700,000 to more than two million and, during that time, that the outstanding debt grew from $8 billion to $43 billion.
And while the $43 billion or so of student debt owed by those 60 and older isn’t a big percentage of the more than $1 trillion in outstanding education loans, it can seem outsized to the individuals who are in arrears. That’s because repayments are being deducted from the Social Security of those who took the loans out, in some cases, more than 40 years ago.
What may have started out as a $3,000 loan, left unpaid can grow into a $15,000 loan; larger loan amounts can grow even larger. For those who are retiring and looking forward to Social Security as part (and sometimes all) of their income, having as much as $1,000 taken out of each monthly check can come as a huge shock.
It’s not just people who have retired who should be concerned. As of 2010, 11% of “pre-retiree families,” AKA Baby Boomers, had education debt averaging $28,000. (Eleven percent may not look like a big number, but with 77 million Boomers, it represents about 8.5 million people.) Left unpaid, the balances will only grow larger and exacerbate the challenges facing those planning for retirement. And I don’t think the federal government is going to come to the rescue in a big way on this. While legislation may be passed that enables the refinancing of balances to a lower interest rate, the Fed has been very consistent in requiring that education loans be repaid, regardless of circumstances.
This is a cautionary tale for Baby Boomers, Gen-Xers and Millennials; anyone who has taken out an education loan—or plans to take a loan out—for either him- or herself or a family member needs to factor its repayment as part of his or her plan for future financial security. For those who have not yet taken out a student loan, it should be a consideration not just on the size of the loan, but more importantly perhaps, is there a commitment on the part of the student to complete his or her education. Getting a degree makes a loan worthwhile; not completing an education makes the loan a cost—one that won’t go away regardless—without a benefit.
Take Away: If you don’t pay your student loans, eventually the federal government will deduct payments from your Social Security checks.