Baby boomers and student debt — the problem no one is talking about

As the ranks of older Americans with student debt has grown so have the challenges these borrowers face in coping with the debt.

Borrowers in their 60s struggle to get into the student loan repayment plan that best fits their needs and face hostile debt collection tactics among other challenges, according to a Consumer Financial Protection Bureau review of complaints from older student loan borrowers between 2012 and 2016.

The findings add to a growing body of evidence that student loan debt is putting baby boomers’ financial health in jeopardy. The number of borrowers over the age of 60 with student loan debt grew from 700,000 in 2005 to 2.8 million in 2015, according to data from the Federal Reserve Bank of New York cited by the CFPB. The number of older Americans with student debt is growing faster than any other age group, according to the CFPB, and it appears they’re struggling. Nearly 40% of federal student loan borrowers over age 65 are in default, the report noted.

“These borrowers do exist,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, a Boston-based nonprofit. “We hear a lot of rhetoric about the kids. The reality is, the issue really is bigger than what gets talked about.”

CFPB/NYFed/Equifax

The number of borrowers over 60 with student loans steadily increased over the past several years.

Many of the challenges older borrowers reported while navigating the student loan system are similar to those confronted by the broader borrower population. Borrower advocates have long complained that student loan companies, whether servicing federal or private debt, often exacerbate the challenges borrowers face paying back their student loans. These struggles are particularly acute for older Americans, said Stacy Canan, the assistant director for the Office of Older Americans at the CFPB.

“When they are unable to get a payment plan for example, or get released from a cosigned loan, those kinds of problems can have a larger impact on an older borrower who is no longer in a position of their lives that they’re likely to have increasing income,” she said.

If these older borrowers with federal student loans can’t get into the correct repayment program because they don’t get enough or the right information from their servicers, their Social Security benefits are put at risk if they default. Older borrowers reported to the CFPB that they often face challenges working with servicers to enter payment programs that allow them to pay off their loans according to their income. In particular, older borrowers said their servicers sometimes fail to adjust their payment plan when they transition to a fixed income.

Older borrowers who are already in default and losing their Social Security benefits reported that debt collector error often meant that they were unable to use the federal programs to which they’re entitled in order to get out of default and so they continued to lose out on much-needed income, as their benefits were garnished.

The number of borrowers over age 65 losing out on a portion of their Social Security check to pay off their federal student loan grew 540% between 2002 and 2015, according to a recent report from the Government Accountability Office. In 2015, roughly 114,000 borrowers over 50 had their benefits garnished to pay off their student debt.

Other research from the CFPB indicates that it’s likely that many borrowers who are in default are eligible for repayment programs that would allow them to be current on their loans with payments as low as zero dollars a month.

“Clearly there is a failure when you have some of the most vulnerable Americans having their wages garnished and there are better, more affordable options,” said Seth Frotman, the CFPB’s student loan ombudsman.

Though older borrowers who take out private loans or cosign on private loans for their children aren’t subject to Social Security garnishment if they don’t pay off their debts, these borrowers reported to the CFPB that debt collectors often threatened to take away these benefits as a way to get them to pay up.

Older borrowers with private loans also complained that lenders wouldn’t provide them with loan information even if they were a cosigner. In some cases, these borrowers said lenders applied their payments to other loans owed by the primary borrower, causing the co-signer’s payment to appear short and rack up interest and late fees. These borrowers said lenders will rarely release them from their cosign obligation even when the loan is consistently being paid on time.

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Over the past several years, it’s become increasingly common for lenders to require parents to be on the hook if a college-age student takes out a loan. What’s more, growing numbers of parents are also taking on federal debt — called Parent PLUS loans — on behalf of their kids. In some cases, these parents may be paying off their own debt at the same time, Yu said.

If these borrowers struggle to pay off their federal loans and lose Social Security benefits as a result they could be at risk of being pushed into poverty. About 67,300 borrowers over 50 had their benefits garnished below the poverty line in 2015, according to the GAO.

“Borrowers at a vulnerable stage in their lives are reaching out to their servicer to try to get help, whether to release their loan or to try to get help because their income has fallen,” Frotman said. “Far too often the status quo is failing them.”

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