How College Debt Can Ruin the Lives of Older Americans
Growing numbers of older Americans who have defaulted on government student loans are finding the federal government is taking a big slice of their monthly Social Security check to get paid back, according to a new congressional study.
“A significant number of older Americans still have student loans debt from financing their own college education,” said Sen. Bill Nelson, D-Florida, Senate Special Committee on Aging chair, opening a hearing last Wednesday on the trend. “What happens to these folks when they hit retirement age is frightening. Those in default on their loans can see their Social Security checks garnished, leaving them with retirement income that leaves them well below the federal poverty line.”
“Furthermore, unlike other types of debt, defaulted student loan debt can lead to reductions in federal payments, including federal tax refunds,” said Benjamin Veghte, the research director at Social Security Works, which advocates for protecting and expanding the program, in an analysis of the Government Accountability Office study. “Student loan debt poses a significant threat to economic security in old age, both because such debt limits the ability to set aside savings, and because defaulted loans may result in substantially reduced Social Security benefits.”
The GAO’s figures are striking. There are 706,000 Americans 65 and older who have student loan debt ranging from $6,000 to $17,500, which is 3 percent of that age group. “While those 65 and older account for a small fraction of the total amount of outstanding federal student debt, the outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013,” GAO found.
Of the people age 65 and older who have defaulted on this debt—meaning they were a year or more late in payments—55,000 saw their Social Security benefits garnished in 2013, a five-fold increase since 2002. The older a debtor was, the greater likelihood that they would see a cut in their Social Security benefits.
“In 2013, just 12 percent of federal student loans held by those aged 25 to 49 were in default, compared to 27 percent of loans held by those aged 65 to 74, and over half of loans held by those aged 75 and older,” Veghte said. “Social Security benefits are already quite modest (the average benefit for a retired worker in 2013 was just $15,526), and more than a third (36 percent) of beneficiaries rely on Social Security for 90 percent or more of their income. Those who default on their or their children’s (in the case of co-signing) student loans are likely to number among this vulnerable group of beneficiaries who rely on Social Security for virtually all of their income.”
In other words, seniors who defaulted on student loans face falling deeper into poverty. In 2013, the average monthly Social Security check was $1,293. However, that sum can be reduced to $750 a month, a 42 percent cut, by the government to collect on the student loans. The reason that post-penalty monthly benefit isn’t higher, GAO said, was because it has not been indexed for inflation since 1998, when Congress last addressed this issue.
“Take the case of Janet Lee Dupree, a 72-year-old Ocala, Florida, resident,” Sen. Nelson said. “In the early 1970s, she took out a $3,000 loan to finance her undergraduate degree. While she recognizes that she didn’t pay the original loan when she should have, she has now paid thousands of dollars on this loan and today owes $15,000 due to compound interest and penalties. She is in poor health and will never be able to pay off this sum, especially because all she can afford is the $50 the government takes out of her Social Security check every month.”
Nelson’s remarks underscore the punitive interest rate penalties that face borrowers of any age who default on student debt. This debt cannot be written off by filing for bankruptcy. “Student loan debt is typically discharged only when a borrower dies or is totally and permanently disabled,” Veghte said.
The GAO did not clearly say what real-life issues were behind the defaults, other than noting that most of the Social Security recipients whose benefits were garnished had been receiving disability benefits before they reached age 65—meaning they could not work. There could be many scenarios where people took out loans for themselves or family members. But the bottom line is they are not able to pay them back.
“We were unable to get data on when loans originated from the Education Department so we were unable to delve into the question that you asked," said GAO director Charles A. Jeszeck in an e-mail asking about the causes. “About all we can say for sure is that about 80 percent of the loans were for the borrower's own education… A key variable to answering your question is knowing the origination dates of each person’s loan.”
“There is no information about when these Social Security recipients borrowed,” said Stu Kantor, an Urban Institute spokesman. “So it is likely that many of them borrowed a long time ago and haven’t paid and the debt has accumulated, with interest and penalties added. There is no way to determine what earnings these people have had over time. You can’t assume that they went back for [educational] training late in their careers.”
“Possible stories include people becoming disabled at any time after they borrowed; people not finding good jobs after they borrowed, whether they borrowed early in life or late; people just not paying because they have had other priorities,” Kantor said. “I think the only reasonable inference is that most of the people do not have current capacity to earn much, so expecting them to pay now is unreasonable and likely to cause significant hardship. Probably not for all of them, but for many of them.”
However, what appeared more certain to Social Security Works’ Veghte was that the trend of seniors defaulting on student loans was likely to continue—and to rise.
“The cost of higher education has doubled over the past two decades, meaning that more Americans are unable to afford a higher education without taking on debt,” he said. "Not only does this affect a growing number of retirees today, it has substantial implications for younger generations as well. As these generations mature, we can expect the share of seniors burdened by student loans to continue to rise.”