Millions of older Americans are facing a financial challenge which could threaten their retirement plans – outstanding student loan debt.
While student debt may be seen by many as a problem which mainly faces younger workers, there are 2.2 million people over the age of 55 with outstanding loans.
If they still owe student loans when they retire, they risk up to 15 percent of their Social Security retirement payments being taken by the Government at source if they default on the debts.
Social Security retirement payments vary, but are on average $1,907 a month, according to officials. Losing 15 percent of that would be $286.
Having the weight of student debt hanging over older workers is hindering their ability to retire comfortably, according to fresh insights from the New School’s Schwartz Center for Economic Policy Analysis.
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Debt-burdened older workers face student loan repayment well into their later years, the report found.
On average, workers aged 55 to 64 take almost 11 years to finish repaying their student loans, while those over the age of 65 will need 3.5 years, Fed data shows.
While the Biden administration has forgiven $167 billion in student loans for 4.75 million Americans so far, that help is only for certain groups such as those working in the public sector.
Millions of older people owe student debt still. In fact, the report found middle-income workers aged 55 and up represent the highest proportion of all student loan borrowers.
‘Older debtors lack the characteristics of younger debtors – more “prime-aged” working years left [to earn a salary], more time to save for retirement – making it harder for them to attain the promised “returns” on their investment,’ the report reads.
The burden of debt also falls disproportionately on lower-income earners.
The Schwartz Center found that half of all debtors over the age of 55 – who are still working – are earning less than $54,600.
This means they could find it more difficult to save as they still have to put money toward loan repayment – and may have to rely more heavily on Social Security once they reach retirement age.
Others may not be able to retire at all – joining the millions of Americans over 65 still in work.
Some 14.9 percent of these over-55 workers have not completed the degree for which they have taken out loans, the report found.
This means not only do they have to make repayment on the loans, but they must do so without having benefited from the expected income rise from a completed degree.
‘These older workers face the dual effects of both indebtedness and lack of enhanced earning power, making them especially precarious,’ the report reads.
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When a debtor defaults on a student loan, the report adds, the loan becomes ‘delinquent.’
Delinquent federal student loans are one of the few conditions which trigger Social Security benefits to be garnished, which reduces retirement income, it said.
The authors of the report want new laws to prevent this happening.
It suggests that policy interventions, including axing Social Security garnishing and improvements to the student loan forgiveness program, could ease the debt burden on older workers and help them save for retirement.
It highlights the Biden administration’s Savings on a Valuable Education (SAVE) Plan, which shortens the timeline for debt relief and means borrowers only make monthly payments when their income rises over a certain threshold.
The report comes as Americans are increasingly questioning the value of a college degree – and whether the potential cost of an education is worth the returns.