If you think student loan debt is a problem for the younger generation, think again. According to the Consumer Financial Protection Bureau (CFPB), about 2.8 million people age 60 and older have outstanding student loans – four times the number in 2005.
Most of the current student-loan debts of people 60-plus were incurred paying for college for a child or grandchild, and in the past decade, for the 60 to 64 age group, student-loan debt has increased eight-fold – to $38 billion!
“Americans in their 60s are now the fastest-growing age group facing student loan debt,” says Andrew Anable (www.safeguardinvestment.com), 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.”
Anable shared these four steps baby-boomer parents should take if they are dealing with – or considering taking on – their kids’ student-loan debt:
• Attack the debt: I recommend an aggressive payment plan because a higher monthly payment may be worthwhile in the long run. Imagine someone has a $35,000 student loan with 7 percent interest. 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. I suggest 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 doesn’t pay. 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. 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.