‘The terms are insane’: Elder student loan borrowers face a lifetime of hardships

Early in 2023, Sue Snodgrass teamed up to help a friend experiencing early-stage dementia get her affairs in order. Sorting through bank statements, Snodgrass noticed a $469 monthly payment that accounted for close to 20% of the woman’s income, which came entirely from Social Security.

Snodgrass was shocked to realize that the ongoing charge went toward paying down a student loan the 79-year-old Petaluma resident took out in 1994 to pursue a law degree. She’d served in the military and spent much of her career as a nurse but had decided to expand her education.

She never made money off the pivot, however. And, while the original loan was for $34,000, roughly three decades later, the woman had paid more than $74,000. And she still owed more than $59,000 on the principal and $63,000 in interest. All told that would be $197,000, close to six times what she initially borrowed.

“I didn't realize the numbers until I sat down and figured them all out,” Snodgrass said. “I was shocked.” She noted that 80% of her friend’s monthly payments went toward interest.

“The terms are insane. Nobody should get to loan people money and get that many times a return,” she said.

Snodgrass’ friend is not alone. More and more, Americans are aging into rather than out of their student loans.

Growing burden for older Americans

While not the focus of most conversations about the country’s student debt problem, the number of elderly borrowers has grown exponentially, and experts expect the trend to continue. There are now approximately 3.5 million Americans aged 60 and older who owe more than $125 billion in student loans. Since 2004, the number of 60-year-old-plus borrowers, however, has increased sixfold, and their outstanding debt is 19-fold.

Many borrowers are paying off loans taken out for their own education rather than for their children. Some may have gone back to school to complete an unfinished degree, boost their skills, switch careers, or increase a chance of promotion or higher pay. Some are still chipping away at debt from degrees that never paid off, sometimes because they were from a predatory or low-quality program and sometimes because of systemic inequities and barriers in the workforce. Notably, women and Black Americans are disproportionately likely to owe college debt around retirement age.

Along the way, declining wages and rising tuition and debt have exacerbated challenges, making it harder for some people to escape their loans, leaving senior borrowers in a particularly vulnerable position.

“The people that you have remaining in the system are often extremely disadvantaged, and so you have a pool of borrowers who not only are struggling to repay, but when they're in default, are being pushed further into poverty,” said Sarah Sattelmeyer, an expert on student loan debt. Sattelmeyer, project director for education, opportunity, and mobility in the higher education initiative at New America, a national public policy think tank, recently co-authored a 2023 research series looking at older student loan borrowers.

According to New America’s research, those who continue to have outstanding loans at age 55 or older measure the same or worse than high school-educated peers by wealth and financial hardship standards. At least 61% say they don’t have enough savings to cover three months of expenses, and 28% have less than $10,000 saved for retirement. About one-third are also dealing with medical debt, while half have unpaid credit card debt.

Unlike their peers who either didn’t take out loans or who were in a position to pay them off, elder borrowers are less likely to have seen the financial benefits hoped for with higher education. Already at that disadvantage, they face even more limited job and income opportunities in their later years, compounding their inability to offload debt and pushing them in some cases to make tough choices.

In a 2018 AARP survey, 9% of baby boomer borrowers said their student loan debt prevented or delayed them from getting necessary health care. New America’s analysis of federal data found that almost one-third of adults over 55 who are still paying off loans for their education reported they cannot pay all of their monthly bills, including student loans.

Older borrowers are twice as likely to default on student loans, and they risk getting their Social Security benefits garnisheed, reducing what can be a vital lifeline to older low-income Americans. Anything a delinquent retiree receives over $750 or 15% of the benefit, whichever is less, can be withheld and applied to debt.

“The government is giving money to try to keep them out of poverty and then is clawing that money back,” said Sattelmeyer. “It both makes our safety net less effective, but it also results in a larger number of people who can't make ends meet in their final years.”

While only a small share of people face this outcome, researchers at the Center for Retirement Research at Boston College found that these beneficiaries potentially risk up to a 6% decline in household income from benefit withholding.

For lower income households “already living paycheck to paycheck,” it’s a “nontrivial amount,” said Siyan Liu, a research economist and study co-author. Moreover, “as a greater share of younger households now have student debt, this may become a bigger problem in the future as they retire.”

Current and potential solutions

Like all other borrowers, older Americans saw their student loan payments resume last month after a more than three-year hiatus.

While President Joe Biden’s previous loan forgiveness plan was thrown out by the Supreme Court in June, there are other options that can help older borrowers reduce their debt burden, with even more help potentially in the pipeline.

This year, the White House introduced a new income-driven repayment plan, which tailors borrowers’ monthly payments to income and family size, allowing for the forgiveness of the remaining debt after a period of about 20 to 25 years.

The new SAVE plan reduces barriers to entry as well as monthly payments and potentially interest owed compared to predecessors of the program and could reduce loan forgiveness time to as few as 10 years in certain circumstances.

For borrowers who were in default going into the pandemic, a one-time temporary program from the Department of Education, Fresh Start, could provide a pathway to reenter repayment in good standing.

At the same time, the Biden administration is developing a narrower student loan relief plan. While details are largely in flux, the Department of Education reportedly wants to focus on reducing student debt that exceeds the original loan amount and loans being repaid 25-plus years later. The department is also looking to broaden forgiveness efforts already underway for students who attended select predatory or low-value programs.

The problem is that with so many moving pieces and the patchwork of private companies servicing loans, accessing information about debt relief options can be difficult, especially for those who would most benefit.

Elderly borrowers in particular have often already been let down by the system on multiple fronts, Sattelmeyer said.

As programs start up again and reforms are designed, there needs be a real focus “on wanting to make sure that they're not reentering a system that didn't serve them” again.

In the end, Snodgrass, the Sonoma County woman, was able to get her friend’s loan discharged through an exemption for those who show total and permanent disability.

But, without the help and initiative of her friends, the 79-year-old retiree may have gone on making payments for her remaining years.

“The end date for her loan was 2042,” Snodgrass said, “so they were planning to continue to do this.”

“In Your Corner” is a column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.