Photo: Deposit Photos, Sjlocke
Baby Boomers take note. Crushing student loan debt is usually thought to be the younger generation’s problem. But more and more, with graduates unable to handle it on their own, mountains of student loans are becoming mom and dad’s albatross, as well.
According to The Federal Reserve Bank of New York, more than $1.3 trillion in student loans is owned by Americans. This amount is more than two and a half times what was owed ten years ago.
The Pew Research Center recently did an analysis of new data from the Federal Reserve Board’s 2016 Survey of Household Economics and Decision-making and offers these five facts about student loans in America based on this analysis:
- About four-in-ten adults under age 30 have student loan debt.
- The amount students owe varies widely, especially by degree attained.
- Young college graduates with student loans are more likely than those without loans to have a second job and to report struggling financially.
- Young college graduates with student loans are more likely to live in a higher-income family than those without a bachelor’s degree.
- Compared with young adults who don’t have student debt, student loan holders are less upbeat about the value of their degree.
Many baby boomers are now faced with helping pay off their kids’ college loans, and that added burden can threaten their financial security in retirement. About 2.8 million people age 60 and older have outstanding student loans – quadruple the number in 2005, according to the Consumer Financial Protection Bureau (CFPB).
“Americans in their 60s are now the fastest-growing age group facing student-loan debt,” said Andrew Anable, a financial planner at Safeguard Investment Advisory Group in Santa Barbara, California.
“It is a serious problem for many who are in retirement or approaching it. But there are ways to manage the debt, and for those still in the planning stages, there are key points to consider so college debt doesn’t compromise their retirement.”
Anable lists four steps baby-boomer parents should take if they are dealing with – or considering taking on – their kids’ student-loan debt:
Attack the debt
Anable recommends an aggressive payment plan because a higher monthly payment may be worthwhile in the long run.
“Let’s imagine someone has a $35,000 student loan with 7 percent interest,” Anable said. “They may want to take a 30-year payment plan instead of a 10-year plan, because it’s going to lower the monthly payment by $170. But at what cost? Paying over 30 years is going to cost thousands more in interest.”
Anable suggests checking a student-loan calculator for payment terms. CFPB reports the average amount of student loan debt for people 60-and-over is more than $23,000.
Be careful about co-signing
Over half of co-signers on outstanding student loans are 55 and over. With students struggling to make payments, parents or grandparents are on the hook if they co-signed – a bigger problem if they’re near or in retirement with a fixed income.
“Many people who co-sign don’t realize they’re responsible for the debt if their kid don’t pay,” said Anable. “It’s OK for you not to co-sign for the kids. It sounds harsh, but the kids need to know this can impact your retirement as well as your credit.” One easy guideline is: For your kids’ college, don’t borrow more than half your annual income.
Make retirement a priority
“Whether you choose to help your kids or not, your retirement needs to be a priority,” Anable said. “A good rule is putting 10-15 percent a year into your 401 (k) or retirement plans. “Earmark it for your future, and it should not be touched early for you or for your kids.”
Do not default
Lapsing in payments can lead to garnishment of Social Security checks. In 2015, more than 12 percent of 60-and-over borrowers were in default. Income-driven repayment plans can be an option to reduce monthly payments. “If you miss a payment, aim to resume payments or renegotiate the terms of the loan as soon as you can,” said Anable.
“This isn’t a problem you can hide away in a drawer,” said Anable. “And before it becomes a problem, baby boomers must carefully balance the decision to help their children along with providing for their own retirement needs.”
Andrew Anable (www.safeguardinvestment.com) is a financial planner at Safeguard Investment Advisory Group in Santa Barbara, California.
