Sat. Jun 15th, 2024
alert-–-millions-of-americans-could-see-their-social-security-retirement-payments-cut-by-$300-a-monthAlert – Millions of Americans could see their Social Security retirement payments cut by $300 a month

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.

The weight of student debt is hindering the ability of older workers to retire comfortably

The weight of student debt is hindering the ability of older workers to retire comfortably

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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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President Biden has forgiven $167 billion in student loans, but many Americans are still in debt

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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.

How an older worker with student loan debt is affected 

The Schwartz Center for Economic Policy Analysis gave a hypothetical situation to illustrate the problem…

Chris lost his job due to the 2008 financial crisis. He was advised to enroll in a master’s degree program at a local, non-ranked private college in order to re-skill himself and become competitive on the job market. 

To pursue the degree, Chris took on a combination of federal and private loans. In 2024, Chris is now 55 years old and earns the median income of $54,600. After a decade and a half of making minimum monthly repayments, he is still saddled with a debt of $50,000 at 4.3 percent interest.

In order to retire by age 65 without any student debt, Chris must repay his loan in nine years – requiring an annual repayment of $5,364, which represents an annual repayment burden of 9.9 percent, considered a ‘medium’ level. 

At this rate, Chris loses an additional $60,386 in funds that could have otherwise gone to his retirement.

Chris could reduce his repayment burden to have more money to save for retirement by extending his loan repayment period, but this would likely delay his ability to retire.

If Chris loses his job and decides to prematurely begin drawing on his Social Security benefits at age 62, but then defaults on his federal loans, he could lose about $2,500 a year in garnished Social Security benefits.

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