Thursday, November 9, 2017

Millions of Older Americans Are Delinquent On Their Loans: Long-Term Repayment Plans Will Make the Problem Worse

Several decades after obtaining their college degrees, millions of older Americans are still paying on their student loans. According to the Consumer Financial Protection Bureau, the percentage of student borrowers over 60 years of age who carry student-loan debt increased by 20 percent from 2012 to 2017.

Even more alarming is the rising number of older student borrowers who are delinquent on their student loans. In all but five states, delinquency rates among older student debtors went up over the last five years.

In California, for example, more than 300,000 people age 60 or older hold $11 billion in student-loan debt, and 15 percent of these borrowers are delinquent.

Delinquency rates for older borrowers vary substantially from state to state. In Georgia, Mississippi, Oklahoma, South Carolina, and West Virginia, one out of five student-borrowers age 60 or older are delinquent on their loan payments.

As the CFPB noted, these data show that an increasing number of older Americans are still shouldering student-loan debt at an age when most of them are living on fixed incomes.  And these data do not reflect the Department of Education’s recent campaign to recruit more and more college borrowers into income-based repayment plans that can stretch out for as long as 20 and even 25 years.

During Obama’s second term in office, the Department of Education rolled out two relatively generous income-driven repayment plans (IDRs): PAYE and REPAYE.  Both plans call for participants to pay 10 percent of their adjusted gross income on their student loans for a period of 20 years.

Most commentators have viewed these initiatives as a humane way to lower struggling borrowers’ monthly payments. But for many of the people in IDRS, probably most of them, the monthly payments don’t cover accruing interest. For these people, their IDRs cause their loan balances to go up even if they make regular monthly payments.  Thus, IDR participants will enter their retirement years with thousands of dollars in unpaid student-loan debt.

The CFPB report should be alarming to everyone. Already, we are seeing student borrowers enter their sixties with increasing levels of debt; and delinquency rates are climbing.

This is a crisis right now, but as the IDR participants reach retirement age, the crisis will grow worse. Indeed, it will be a calamity as millions of people try to service their student loans while surviving on Social Security checks and small pensions.

References

Older consumers and student loan debt vary by state. Consumer Financial Protection Bureau, August 2017.


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