Student Loans

Student Loan Debt Burdens More Than Just Young People

Elizabeth Olson

Janet Lee Dupree, 72, was surprised when she received her first Social Security benefits seven years ago. About one-fifth of her monthly payment was being withheld and she called the federal government to find out why.

The woman, who is from Citra, Fla., discovered that the deduction from her benefits was to repay $3,000 in loans she took out in the early 1970s to pay for her undergraduate degree.

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"I didn't pay it back, and I'm not saying I shouldn't," she said. "I was an alcoholic, and later diagnosed with H.I.V., but I've turned my life around. I've been paying some of the loan back but that never seems to lower the amount, which is now $15,000 because of interest.

"I don't know if I can ever pay it back."

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She is among an estimated two million Americans age 60 and older who are in debt from unpaid student loans, according to data from the Federal Reserve Bank of New York. Its August "Household Debt and Credit Report" said the number of aging Americans with outstanding student loans had almost tripled from about 700,000 in 2005, whether from long-ago loans for their own educations or more recent borrowing to pay for college degrees for family members.

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The debt among older people is up substantially, to $43 billion from $8 billion in 2005, according to the report, which is based on data from Equifax, the credit reporting agency. Currently about 155,000 people, according to federal data, have money deducted from their Social Security payments to pay down their outstanding student loans.

While older debtors account for a small fraction of student loan borrowers, who have accumulated nearly $1 trillion in such debt, the effect of owing a constantly ballooning amount of debt but having a fixed income can be onerous, said Senator Bill Nelson, Democrat of Florida, chairman of the Senate Special Committee on Aging.

"Those in default on their loans can see their Social Security checks garnished, leaving them with retirement income that leaves them well below the poverty line," he said at a committee hearing this week to examine the issue.

"Some may think of student loan debt as a young person's problem," he said, "but, as it turns out, that is increasingly not the case."

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That is the problem that Rosemary Anderson, 57, described to the committee. The woman, who is from Watsonville, Calif., has a home mortgage that is under water, as well as health and other problems, and $64,000 in unpaid student loans. She borrowed the money in her 30s to fund her bachelor's and master's degrees, but fell behind on her student loan payments eight years ago.

As a result of compound interest, her debt has risen to $126,000. With her $526 monthly payment, at an 8.25 percent rate, she estimates that she "will be 81" by the time it is paid, and will have laid out $87,487 more than she originally borrowed.

Mrs. Dupree, in a telephone interview, said she, too, needed some relief. As a part-time substance abuse counselor for a nonprofit based in Ocala, she said she could barely afford the $50 each month that she negotiated with the federal government as payment for her growing debt.

She is supporting a measure introduced by Senator Elizabeth Warren, Democrat of Massachusetts, and a committee member, that would allow people who borrowed money for education before July 2013 to refinance at current, lower interest rates.

A person who took out an unsubsidized loan before July of last year "is locked into an interest rate of nearly 7 percent and older loans run 8 percent to 9 percent and even higher," Ms. Warren said. The measure would lower the interest rate to 3.86 percent for undergraduate loans and a little higher for graduate and parent loans.

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But the future of the bill is unclear. It was stalled in the Senate in June by Republican senators, like Lamar Alexander, of Tennessee, who said college students didn't need a taxpayer subsidy to help pay off a student loan. "They need a good job."

The measure would help 25 million people refinance their student loans, but impose a tax increase on people making over $1 million — which Senator Mitch McConnell, of Kentucky, the majority leader, labeled a "tax increase bill styled as a student loan bill."

Matt Kibbe, president and chief executive of the conservative organization FreedomWorks, urged its members to tell lawmakers to oppose the legislation on grounds that "allowing students to artificially refinance their loans into artificially low-interest federal loans will only encourage future generations to continue to accumulate mountains of debt larger than they can afford.

"Instead, the federal government should get out of student loans altogether and allow markets to send proper signals as to who can actually afford these loans."

Even though the number of retiree debtors is small, $1,000 deducted from their Social Security payments "can make a real difference for affected senior citizens or disabled adults surviving on Social Security," said Sandy Baum, a professor at the George Washington University Graduate School of Education and Human Development, and a researcher at the Urban Institute.

For most beneficiaries, she said, "the average monthly payment of $1,200 is the primary source of income." While the government should be holding student borrowers to account for their debt, "and there may be some who just decide not to pay," she said "most are people who are not earning money so it doesn't make sense to ask them to pay."

As the ranks of retirees grow, more attention is being focused on the education debt incurred by the next group of people approaching retirement, those 50 to 64 years old. A 2013 AARP study of middle-class families found that aging households were carrying increasing amounts of debt.

While mortgages account for most of that debt, education debt levels have been rising for the preretiree group, noted Lori A. Trawinski, a director at the AARP Public Policy Institute.

"As of 2010, 11 percent of preretiree families had education debt with an average balance of $28,000. Growing debt burdens pose a threat to financial security of Americans approaching retirement, since increasing debt threatens their ability to save for retirement or to accumulate other assets, and may end up leading them to delay retirement," she said.

The Government Accountability Office warned this week about the growth of educational debt among seniors. It released a report that relied on different data from that used by the Federal Reserve Bank of New York, but nonetheless painted an ominous picture of lingering debt burden.

"As the baby boomers continue to move into retirement, the number of older Americans with defaulted loans will only continue to increase," Charles A. Jeszeck, the G.A.O. director of education, work force and income security, testified at the hearing. "This creates the potential for an unpleasant surprises for some, as their benefits are offset and they face the possibility of a less secure retirement."

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More than 80 percent of the outstanding balances are from seniors who financed their own education, the G.A.O. report concluded, and only 18 percent were attributed to loans used to finance the studies of a spouse, child or grandchild.

But the default rate for these loans is 31 percent — a rate that is double that of the default rate for loans taken out by borrowers between the ages of 25 and 49 years old, according to agency data.

"Such debt reduces net worth and income and can erode retirement security," Mr. Jeszeck said. "The effect of rising debt can be more profound for those who have accumulated few or no financial assets."

And such student loan debt "can be especially problematic because unlike other types of debt, it generally cannot be discharged in bankruptcy," he added.

As a result of unpaid student debt, Social Security payments can be reduced to $750 a month, which is a floor Congress set in 1998. Senator Susan M. Collins, Republican of Maine, and a member of the committee on aging, said she was planning to introduce a measure to adjust the amount for inflation "to make sure garnishment does not force seniors into poverty."

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For people like Ms. Anderson, help cannot come too soon.

"I incurred this debt to improve my life," she told the committee, "but the debt has become my undoing."

By Elizabeth Olson, The New York Times