A new report from the New School’s Schwartz Center for Economic Policy Analysis looks at how student loan debt is weighing down workers gearing up for retirement, and how that debt has diminishing returns for any would-be-retirees.Using data from the Fed’s Survey of Consumer Finances, the analysis finds that over a million Americans ages 55 to 64 are holding student loans, or have spouses with loans. Gen Xers and boomers are also set to be saddled with that debt for years to come.And the burden of that debt falls disproportionately on the lowest earners. Looking at debtors over the age of 55, just 3.7% are in the top 10% of earners — meaning that they make over $192,000. Conversely, 46% of those debtors are in the middle 40%, making $54,600 to $192,000. And 56% of those debtors are in the bottom half of earners, making below $54,600.Gen Xers and younger boomers still expect their student debt to loom well into retirement age, according to the analysis; on average, workers ages 55 to 64 say it’ll take 11 years to repay their loans, meaning many will be saddled with that debt well into retirement.
That comes as many older Americans already find themselves living off of less than $30,000 a year, with many reliant on Social Security to stay afloat — or some just unable to retire altogether.There are a range of reasons why older borrowers might be struggling to pay off their student loans. A key reason is interest capitalization: if a borrower finds they cannot make their monthly payments at any point in their repayment period, they are forced to enter deferment or forbearance. During those times, the borrower is not required to make a monthly payment, but interest still accrues on their principal balance, meaning that oftentimes, the balance can surge beyond the original amount borrowed.And should a borrower find they cannot pay their loans in retirement, the consequences could be severe. Retirees are at risk of having up to 15% of their Social Security benefits garnished to repay their loans — something that a group of Democratic lawmakers have called to put an end to.Of course, younger borrowers are also facing challenges paying off their student debt. Millennials are most likely to hold student debt with an average balance of about $35,000, and while fewer Gen Xers have student debt, their average balance is higher at about $48,000, according to TransUnion.Provisions are being rolled out by President Joe Biden’s Education Department that could ease the burden of student debt on older borrowers. For example, the SAVE income-driven repayment plan shortens the timeline for debt relief — borrowers who originally took out $12,000 or less in student loans could receive debt cancellation after as few as 10 years of qualifying payments.The department also extended the deadline for borrowers to benefit from one-time account adjustments, which allows borrowers on Public Service Loan Forgiveness and income-driven repayment plans an extra shot to get closer to relief.On top of that, the Education Department is working to implement a broader student-loan forgiveness plan after the Supreme Court struck the first one down. It would cancel up to $20,000 in unpaid interest for borrowers, along with providing debt relief to those who have made at least 20 years of payments without any forgiveness.Are you a Gen Xer with student debt who is worried about retirement? Share your story with these reporters at asheffey@businessinsider.com and jkaplan@businessinsider.com.
