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A recent report from the Urban Institute shows student loan debt isn’t just harming young people’s financial futures—it’s weighing on older generations, too.
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Student loan forgiveness was a key component of President Biden’s 2020 campaign. While the policy has faced legal and legislative challenges, the issue of Americans’ more than $1 trillion in student debt has been thrust into the national conversation, mostly centering on loan forgiveness for Generation Z young professionals and middle-aged millennials.
However, a recent series of reports and blog posts published by Urban Institute shows that older adults are also struggling to pay back their student loans.
By analyzing a nationally representative sample of credit records from roughly four million adults aged 50 and older, Urban Institute’s report concludes that as of August 2022, approximately 6 percent of older adults—or 7.2 million Americans—have yet to pay off their student loans. Among those same borrowers, 8 percent, or 580,000 individuals, are behind on payments. The median amount of delinquent debt was approximately $11,500.
It’s a financial burden that can leave many seniors struggling to retire and ultimately exacerbates the poverty levels of older Americans, Urban Institute researchers say. As a result, it not only strains the individuals but also the social welfare programs designed to function as a safety net.
The findings of this report reflect similar results from previous studies conducted by groups such as the Education Trust and AARP. But, despite the wealth of data, Jason Cohn, a research associate from the Urban Institute’s Center on Education Data and Policy, noted that the impact of loan debt on older adults is often overlooked. But when you draw attention to the fact that loan debt can force seniors to work far longer before retirement or exit without the dignity of a plan for long-term care, it can give people a new perspective.
“Looking at it through this lens of ‘Will they be able to retire with financial security?’ is something that’s a little bit different,” he said.
What’s not different, regardless of age, is the trend of racial disparities among debt holders.
The report’s findings show that individuals aged 50 and older from American Indian and Alaska Native (AIAN), Black, and Hispanic communities are disproportionately burdened by student debt. The overall delinquency rate among all borrowers was 8 percent, but the rates among racial minority groups were as much as seven percentage points higher at 10, 13 and 15 percent for Hispanic, Black and AIAN communities, respectively.
Financial policy experts cite labor market discrimination, wage gaps, inequities in generational wealth and prejudices such as redlining, underbanking and lack of access to tax-advantaged savings as systemic barriers that make wealth accumulation challenging for racial minorities, particularly for Black and Indigenous Americans and people of color (BIPOC).
As a result of these barriers, they say, BIPOC individuals are more likely to depend on student loans to put themselves or their children through higher education.
“These disadvantages can compound over decades within and across generations, making these borrowers less able to repay their loans on time,” wrote Mingli Zhong, an Urban Institute senior research associate who specializes in borrowing behavior. “Over all, older adults are carrying more debt, not just student loan debt but all kinds of debt [medical, mortgage, etc.] into retirement,” she later told Inside Higher Ed.
That, combined with the fact the U.S. population is aging and more people are nearing retirement, has consequences. Later in life, borrowers who can’t pay off their student loan debt are more likely to experience poverty and rely on social welfare safety net programs such as the Supplemental Nutrition Assistance Program, Medicaid and Supplemental Security Income.
In some cases debt can be so crippling it puts an individual at risk of losing a portion of their Social Security benefits—a lifeline of guaranteed income for retirees. In 2015, at least 114,000 Americans had their Social Security benefits garnished because they couldn’t make their student loan repayments, the Urban Institute reports. Annual tax refund benefits can also be seized to pay off delinquent loans.
Zhong said she anticipates an increasing strain on these and other social safety nets over the course of the next five to 20 years. Retirement planning is already becoming an increasingly personal responsibility, she said, but growing student loan debt among seniors only furthers that.
In response, the Urban Institute recommends federal policymakers respond to the acute symptoms by trying to cancel debt for long-term borrowers, establishing fair repayment terms, encouraging employers to match contributions to student loan payments and ensuring that older borrowers can keep their Social Security benefits.
The Biden administration is already attempting to take some of these steps. The Education Department in April released a set of draft rules that would ease the burden of student debt among older borrowers by offering one-time relief to those with Parent Plus loans and those who have been repaying their own loans for 20 years or more.
The public has sharply divided views on the subject of student debt relief, however, and it’s uncertain whether Biden’s policies will take effect before the end of his term. But some student loan policy experts hope that the timing of Urban’s report release could help increase support.
“The misconception that student debt is a young person’s issue is a trope that opponents of debt relief like to push out,” said Aissa Canchola Bañez, policy director for the Student Borrower Protection Center. “And so, the context in which this report is being done really gives us a chance to illustrate the positive impact that the Biden-Harris administration’s upcoming rules, when they are finalized, will have on folks, particularly older Americans.”
But not all policy experts agree.
“All these recommendations are doing is just further subsidizing the problem,” said Michael Brickman, a senior fellow at the American Enterprise Institute. “As we’re trying to treat the symptoms, we’re making the disease worse.”
As a representative of the conservative think tank, Brickman believes the underlying issue—that college programs cost too much and often don’t deliver a strong enough financial return—must be addressed first.
He suggested that policymakers must hold the institutions themselves accountable for student debt, by requiring them to co-sign student loans.
“Institutions should not be able to cash checks from the government to pay for programs that consistently do not deliver a financial return,” Brickman said. “The college or university should be held accountable, and they should have direct and significant skin in the game with respect to what their students borrow.”
