Student loan debt isn’t harming just young people’s financial futures—it’s weighing on older generations too.
For borrowers ages 50 and older, student loan debt poses significant challenges to retirement security. These borrowers may struggle to achieve financial stability later in life and delay retirement, ultimately exacerbating senior poverty.
This past spring, the US Department of Education released a set of draft rules that would ease the burden of student debt among older borrowers and others. The plan would offer one-time relief to borrowers who have outstanding debt on loans that entered repayment at least 20 years ago. This automatic relief would apply to any type of federal loan held by the department, including Parent PLUS loans.
New research from the Urban Institute sheds light on the prevalence of student loan debt among older adults and who stands to benefit the most from debt relief efforts. Using a nationally representative sample of credit records, we find American Indian and Alaska Native (AIAN), Black, and Hispanic communities face higher delinquency rates than older Americans overall because of the same structural barriers to financial stability that lead them to take out loans in the first place. To improve financial security for older borrowers, especially borrowers of color, federal policymakers could provide debt relief to long-term borrowers, allow borrowers to keep their Social Security benefits, and prevent future generations from taking on too much debt.
Structural barriers contribute to higher student loan delinquency rates among AIAN, Black, and Hispanic communities
In our analysis of credit records from roughly 4 million adults ages 50 and older as of August 2022, we found approximately 6 percent of older adults—about 7.2 million Americans—carry student loan debt. Among these borrowers, 8 percent, or 580,000 older adults, are delinquent on their loans.
We also found notable racial disparities in student loan delinquency rates among older adults. Specifically, older adults living in communities where the majority of residents are AIAN, Black, or Hispanic were less likely to repay their loans on time. Though the overall delinquency rate in the nationally representative sample was 8 percent, rates were 15 percent, 13 percent, and 10 percent in predominantly AIAN, Black, and Hispanic communities.
Deeply rooted structural barriers contribute to these disparities. Even when they attain the same level of education, people of color often don’t receive the same economic benefits of educational attainment as white people. In particular, women of color are disproportionately crowded into lower-wage, lower-quality jobs compared with similarly educated white men, resulting in cumulative disadvantage throughout the life course.
Lower wages, inequities in wealth accumulation, and gaps in inherited wealth also mean AIAN, Black, and Hispanic people are more likely to need student loans for themselves or for their children in the first place. These disadvantages can compound over decades within and across generations, making these borrowers less able to repay their loans on time or save for retirement.
Later in life, borrowers without sufficient income to pay down their student loan debt are more likely to experience poverty and rely on safety net programs. This debt can even put their Social Security benefits, a lifeline of guaranteed income for older Americans, at risk. In 2015, at least 114,000 Americans (PDF) had their Social Security benefits garnished because they couldn’t make their student loan repayments.
How policymakers can help alleviate the burden of student debt for current and future borrowers
To address these structural barriers and improve financial security for older borrowers struggling with debt, federal policymakers could consider the following:
- Cancel debt for long-term borrowers. As Urban research has shown, canceling debt for older borrowers who have been in repayment or default for more than two decades would provide significant relief for those most harmed by structural racism. Finalizing a new rule proposed by the Department of Education would provide such relief for these borrowers.
- Establish fair repayment terms. Currently, defaulted borrowers must pay more per month to exit default than they would under income-driven repayment plans, and they may also face wage garnishments that exceed this amount. New America and Urban research suggests the Department of Education could ensure defaulted borrowers don’t pay more monthly than they would in repayment plans to prevent further financial strain.
- Encourage employers to match contributions to student loan payments. As outlined in the Secure 2.0 Act (PDF), employers can treat student loan payments as contributions to retirement savings and match these payments as contributions to employees’ retirement accounts. Recent research projects that this Secure 2.0 provision could enable employees with student loans to spend about 3 percent more on everyday needs during their working years while earning a matching contribution from their employer to their 401(k) retirement account.
- Let older borrowers keep their Social Security benefits. To protect the financial well-being of older borrowers, especially those with the lowest incomes, federal policymakers could stop the garnishment of Social Security benefits (PDF) when a student loan is in default.
Policymakers could also consider ways to prevent new borrowers from accumulating unaffordable debt:
- Reshape parent PLUS loans, so parents don’t borrow more than they can repay.
- Provide more grant aid for higher education. Policymakers could reduce reliance on student loans in communities most affected by structural barriers to wealth-building by increasing Pell grant amounts and establishing a need-based living stipend.
- Require degree programs to set students up for gainful employment. Establishing guardrails could help prevent students from taking on federal loans for programs that don’t pay off. These guardrails could mirror the Department of Education’s new standards for for-profit and career-oriented programs, which include debt-to-earnings ratios and a minimum earnings threshold. Federal policymakers could also consider setting tuition-to-earnings ratios or rules that combine multiple metrics.
These policy solutions could help address structural barriers, reduce student loan debt, and ensure current and future generations of older Americans achieve greater financial stability in retirement.
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