Boomers Chase the Money to Repay Student Loans

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"I Hate Living Like This"

Feb, 9th 2017

Amy Atkinson has been through the wringer.  She was stuck in a dead-end mortgage industry job well into her 40s and took the route recommended by many – she got an MBA, borrowing around $50,000 to fund her studies.  Then, the mortgage business collapsed, and she needed to make a change, fast. She took out another loan to earn a degree in graphic design.  Then, she got sick and ended up with a $15,000 medical bill she couldn’t pay.

Now 57, she has about $75,000 in student loan debt, even after declaring bankruptcy.

“I don’t think I’ll ever get it paid off,” she said.

Atkinson is part of the fastest-growing segment of student loan debtors – non-millennials.  The number of older Americans struggling to pay either their own loans, or their kids’ loans….or, sometimes their grandkids’ loans …is skyrocketing, according to government data. Americans aged 60 or older with student debt quadrupled from 2005 to 2015, the Consumer Financial Protection Bureau says. As a group, they owe $67 billion, the agency says.

Atkinson says it’s been hard to find a good-paying job in her hometown of Topeka, Kansas. So she works at American Eagle Outfitters, some 45 miles away, and does some design work on the side. Still, she’s only earning about one third of her old income.

Things sound even more bleak for Sandra Dyess, a 50-something in Dallas.  She borrowed about $130,000 to study information technology – first earning a bachelor’s degree from the University of Phoenix, then a master’s from DeVry University. She finished in 2008.  She has what she considers a good-paying job now, and she’s on a reasonable income-based repayment plan.  But her payments so far haven’t even covered the interest on her loan, so the balance has swelled to $167,000.

“I understand I owe this and want to pay it,” she said.  “I don't feel I will ever have this paid down in my lifetime.”

The hardest pill to swallow is that, after making payments consistently, it seems hopeless that her loan balance will ever drop.

“I wish …at least something would go to pay the principal from day one,” she said.

Jeff, 53, of Seattle has been running in place on his loans for more than two decades (He asked that his last name be withheld).  He borrowed about $6,000 in the early 90s for school, and ended up on the hook for his ex-wife’s loans, too, for a total of about $15,000. He’s a contract worker, which means irregular income – sometimes one year on, three months off, for example.  So he’s applied for several forbearances during that time.  Not making payments meant the balance swelled to $24,000 in 2004. Now, it’s about $17,000.

“Part of this story is wage stagnation. The salary that I pull in now, hasn't changed in about ten years,” Jeff said. “Top of my game, yet I'm seeing no wage growth. My retirement plan is that I hope my novel is a best seller. Right? Ugh.”

Jeff raises a hidden, looming consequence of this increase in elder-student-loans.  Financial advisers often talk about the importance of “peak earning years” for retirement savers – generally, the late 40s and early 50s.  Those are the years when workers earn the most and they should concentrate on fattening up retirement accounts for the coming, leaner years. But obviously, borrowers like Jeff aren’t doing that. Instead they are, increasingly, falling delinquent in their loans. The proportion of delinquent student loan debt held by borrowers age 60 and older increased from 7.4% to 12.5% from 2005 to 2012, the CFPB says. Meanwhile, the number of Social Security recipients whose checks are being “garnished” to pay down delinquent student loans has risen fivefold from 2005-2015, according to the CFPB.

Not surprisingly, this also means older Americans are increasingly skipping health care needs like prescription medicines, doctors’ visits and dental care to pay the bills.  In 2014, 39% of consumers age 60 and older with a student loan did so, the CFPB says.

“We are concerned that student loans are contributing to financial insecurity for many older Americans and that student loan servicing problems can add to their distress,” said CFPB chair Richard Cordray when announcing new research into the senior student loan problem this January.  The CFPB used the research to call attention to loan servicing issues and complications that older borrowers face when trying to obtain relief, such as income-based repayment plans.

The most attractive feature of those plans, however, might not be available to older debtors.  With income-based repayment, former students who pay on time for 20 or 25 years (depending on the program) are entitled to forgiveness of the remaining balance.  Older borrowers just might not have that long, however.

During the campaign, President Donald Trump addressed the student loan problem, and said he’d adjust income-based repayment plans to require higher monthly payments now (12.5% of income instead of the current 10%) but would offer quicker balance forgiveness – after 15 years instead of 25.  That plan would save borrowers money, according to an analysis by NerdWallet. And could really help older debtors – at least there would be a finish line for them.

But so far, the administration hasn’t indicated there’s a timetable for implementing the Trump repayment plan. It’s also unclear if borrowers with private loans – as opposed to federal loans – would benefit.

So older debtors like Atkinson have few options other than to plow ahead and hope for a dramatic economic turnaround.

“The state is having a job fair in March,” she said. “Guess I'd better go and find something which pays a little more.”

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