The Hidden Face of Student Loan Debt

By: CJMcKinney  //  Education, US News

by C.J. McKinney

The total student loan debt carried by US citizens now tops $1 trillion. More people owe money on student loans than populate 200 different countries in the world. The public face of all that indebtedness is a fresh faced millennial with a brand new degree.

But the student loan crisis has another, hidden face –borrowers in their midlife and senior years.

Whether it’s unpaid debt from college days long ago, a new loan that covered a midlife career change, or a parent’s attempt to help a child through school, student loan debt is taking its toll on generations already grappling with concerns about retirement and making ends meet on fixed incomes. It’s a struggle compounded by the fact that student loan debt generally can’t be discharged in bankruptcy and the government has the authority to garnish Social Security checks to collect on federal student loan debts that may be decades old.

A recent hearing before the Senate Special Committee on Aging, titled, “Indebted For Life: Older Americans and Student Loan Debt,” laid out the scope of the problem – and reasons for concern. Households headed by people age 65 and older are carrying $18.2 million in student debt, most of it in default. The average indebted retiree on Social Security loses about $130 a month from their check to the government’s effort to collect on that debt.

Higher education has always promised opportunity. That’s why in the years after World War II, the US government began subsidizing college for returning servicemen – a step that changed the perception of college forever. Once a privilege afforded to the children of the wealthy along with a few exceptionally gifted “poor” students, college was now available to just about any GI who wanted to go.  The democratization of higher education had begun.

In the 1950s and 60s, traditional federal student loans opened new doors for students of all ages, races and genders. College wasn’t just for kids fresh out of high school any more. Women flocked to school after life crises like divorce or widowhood; people of both sexes returned to school in their forties, fifties and beyond to learn new skills, find new jobs, or just to find themselves.

And for many, the government paid the way. College costs increased a whopping 1,120 percent in the years between 1970 and 2013.  Few students could afford to shoulder the costs on their own, but they could turn to a variety of federal student loan programs.  And when even those loans weren’t enough, private lenders stepped in to fill the gap.  These banks and other kinds of institutions are happy to issue loans to students already carrying federal loan debt, as well as to their well meaning parents eager to help them finish their education.

All that debt on all those generations has created a stubborn burden that compromises the security and quality of life of borrowers of all ages. But older borrowers face special challenges –and relief is harder to come by for those facing reduced incomes and carrying other kinds of debt as well.

Since 2002, the Department of the Treasury has the authority to offset student loan debt by cutting monthly Social Security checks.  That garnishment is capped, though – Social Security checks can’t be cut below $750.

But that cutoff has been in place for decades, and in today’s terms, it’s substantially below poverty level. Though perfectly legal, cutting benefits to that level could leave low income seniors faced with an indefinite cutback to their monthly checks and limited recourse to the relief measures that can help younger borrowers over time.

The same scenario could haunt midlife borrowers who have taken out loans – or cosigned them – to finance a child’s college studies. Well-intentioned parents can take out either private loans of their own, or the federally funded PLUS loan to help pay for a child’s education.  Or they can simply be a cosigner on the student’s own loan.

Whatever option they choose, they can end up with a considerable load of secondhand debt. If the child defaults or dies, that debt burden falls on the parent as co-signers.  And an outstanding PLUS or other federal loan can eat into a parent’s plans for retirement, since those loans aren’t covered by many relief programs either.

The Student Loan Fairness Act combines pieces of other relief programs in an effort to address he many faces of the crisis, and it does offer options for parents who take out PLUS loans. Otherwise, these older debtors are on their own.  Social Security checks can’t be docked for private loans – but standard debt collection procedures do apply, creating burdens of another kind, with lowered credit scores and even court actions.

As the Senate Special Committee on Aging reviews the problem of senior student debt, some nine members are proposing measures targeted pacifically to that group. Rep. Susan Collins (R-Maine) us proposing legislation to adjust the Treasury Department’s collection rates and the $750 cutoff for inflation – a move that could offer relief to millions of indebted seniors.

A measure introduced by Sen. Elizabeth Warren (D-Mass) takes another tack, allowing people who borrowed money before July 2013 to refinance that debt at today’s lower interest rates. Though that won’t eliminate debt, it could ease the burden on some borrowers who are making regular payments on their loans – but not forgive the debt entirely.  Current measures only do that if a borrower has been paying on the loan for at least 120 months.

For student debtors of all ages, and their families, real relief may be a while in coming. But without student loans, as college costs continue to rise, a higher education may once again become the privilege of a wealthy few.

Image: Flickr/blmattfeld