The years immediately leading up to retirement should be a time when Americans earn and save as much as they possibly can, before they leave the traditional workforce and try to kick back.
Yet millions of people in their 50s and 60s are burdened with student debt — from their own time in school decades earlier or from loans taken out on behalf of children or grandchildren.
Some of that debt could be erased if President Joe Biden uses his executive authority to forgive as much as $50,000 in student loan debt per borrower. He’s facing mounting pressure to take action — and alarming numbers of pre-retirees are among those hoping he provides relief soon.
The heavy weight of student loan debt on older Americans
Though student loan balances have been increasing among all age groups, the growth has been greatest among those closing in on retirement, according to a study from the AARP Public Policy Institute.
Borrowers over 50 owe $289.5 billion in student debt, up from $47.3 billion in 2004, the report shows. That more than five-fold increase reflects sharp increases in the number of families borrowing and the amounts they borrow.
In pre-retirement years, which AARP considers to be between ages 50 and 64, Americans should be putting money aside and investing it for the next chapter in their lives. But older borrowers with student debt save less than their counterparts without it.
“To the extent that their budget is squeezed by the need to make student loan repayments, it’s no doubt cutting into their ability to save for other purposes,” says AARP’s Lori Trawinski, lead author of the study.
Student loan borrowers ages 50 to 59 had a lower median amount in their retirement accounts than consumers without student loan debt, a 2017 report from the Consumer Financial Protection Bureau found.
Americans in their 50s and 60s struggling to save for retirement and pay off student loans can turn to certified financial planner professionals for help. Financial planning services today can be surprisingly affordable and are even available online.
Student loan defaults are costly for pre-retirees
Student loan defaults have become a growing concern among members of the older generation.
The AARP report says in 2015, 6.3 million borrowers between ages 50 and 64 were carrying student loan debt. Nearly 3 in 10 (29%) were in default, meaning their payments were at least nine months past due.
And, among the 870,000 people over age 65 who had student loan debt that year, 37% were in default. When retirees are in default on federal student loans, the government can take up to 15% of their monthly Social Security benefits.
Earlier this year, Massachusetts Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren cited the rising number of seniors with student debt in an op-ed piece for CNBC.
“Older Americans shouldn’t have to limit daily meals so that they make a monthly payment,” they wrote. “And they definitely shouldn’t have their hard-earned Social Security stripped from them.”
President Biden has said he’s willing to cancel $10,000 per borrower in student loan debt, but he hasn’t committed to the $50,000 in forgiveness that Schumer, Warren and others have been pushing for.
Options to improve your financial situation now
If you’re among those struggling with growing debt and can’t afford to wait until the Biden administration takes action, consider other ways to bolster your finances.
You could refinance your student loan debt into a new loan at one of today’s record-low interest rates. Moving your debt into a cheaper loan could help you save on monthly payments and pay off your balance faster.
Note that if you have a federal student loan, refinancing would involve switching to a loan from a private lender. That would also disqualify you from federal loan forgiveness, should it happen, and other protections.
If you own a home, you could refinance your mortgage with a cash-out option that would allow you to borrow against your home equity to pay off the debt. Rolling your student loan debt into your mortgage could help free up cash flow to pay other bills.
Or, to create room in your budget, you could simply do a traditional mortgage refi — and score savings. Mortgage rates are still historically low, and refinancing could cut your monthly payment by hundreds of dollars if you shop around for a good rate.
Finally, explore ways to increase the money you’re bringing in. If you’ve been reluctant to dabble in the record-shattering stock market, try a lower-stakes approach. Use an app that helps you earn returns in the market merely by investing your “spare change.”
