Rising Student Loan Debt Continues to Burden Older Borrowers

At the end of 2020, student loan debt outstanding in the United States stood at $1.6 trillion dollars. This is not just a problem for younger generations, but rather for all generations.

In fact, it is getting worse for older families. In 2004, borrowers age 50 and older owed 10 percent of student loan debt. But in 2020, the 8.4 million older borrowers holding such debt more than doubled to 22 percent, totaling $336.1 billion. According to the Federal Reserve Survey of Consumer Finances, the average amount of student loan debt carried by families headed by someone age 50 or older was $36,421 in 2019.

Student loan debt was never meant to last a lifetime or become a threat to retirement security. Yet today, borrowers frequently wind up carrying it into retirement, long beyond their working years.

How Did We Get Here?

Rapidly increasing college costs is one reason.  A recent AARP report found that over the past three decades, the average cost of a four-year college education more than doubled on an inflation-adjusted basis. This cost increase coincided with decreasing state and local funding per student for higher education and family incomes that have not kept pace with inflation.   

Parents often borrow to finance their children’s education. And while it is understandable that a parent would want to do that, the resulting financial strain may last for decades. In 2018, parents funded 44 percent of college costs for the average student, 10 percent of which came from borrowing. Parents taking out federal Parent Plus loans can borrow up to the full cost of attendance, without being subject to any underwriting designed to ensure they can afford to repay.  As a result, defaults of Parent Plus loans have been increasing with the rising numbers and amounts of outstanding loans (that is, prior to the forbearance granted to borrowers during the pandemic), particularly for borrowers age 65 and older.

Another way older borrowers end up carrying student loan debt is by cosigning private student loans. Private student loans total approximately $139 billion, and 88 percent of those loans have a cosigner. When the student borrower cannot make payments, the cosigner is on the hook. AARP research found that a quarter of cosigners age 50 and older ended up having to make a payment because the student borrower failed to do so. Being a cosigner on a loan also affects the amount of credit available to a cosigner for other purposes.

Finally, some older borrowers are carrying debt for their own education.  In some cases, it is for their undergraduate education that they were not able to pay off early in their career.  Or it could be for graduate degrees or other certifications.  For others, it could be for education they pursued when they were older—to re-career or reskill—either by choice or as a result of necessity. Whatever the reason, the threat to financial security in retirement is the same: carrying student loan debt into retirement is a recipe for insecurity.

Pandemic Stems Enrollment Yet Debt Continues to Rise

The pandemic has affected student loan debt outstanding in several ways. College enrollment (both two- and four-year programs), while declining for the past decade, saw a particularly large 2.5 percent drop in the fall of 2020.  Consequently, fewer students and their parents are borrowing in the near term.  Yet outstanding balances are still increasing, so something else is at play.

The culprits: rising college costs continue to lead students and their parents to borrow ever-increasing amounts and the lack of loan payments on outstanding debt. Following the passage of the CARES Act last March, borrowers with federal student loans received automatic forbearance, meaning they did not have to make any loan payments and interest does not accrue on those loans during the forbearance period, (recently extended through September 2021).  So loan balances that would have otherwise decreased are staying the same unless payments are made.  While the forbearance grants a short-term postponement of the burden of making monthly payments, it does nothing toward paying off the balance.

Put another way, regardless of the temporary relief, long-term financial security remains at risk, particularly for older student loan borrowers. Other, permanent solutions that address outstanding student loan debt are needed.