In the past, older households tended to retire without debt on mortgages repaid. It was over at that time. Student loan debt to seniors, their children, and their grandchildren has increased over the decades.
Post-retirement security debt is an ominous and undervalued issue, but the US Government Accountability Office (GAO) is catching up. The median debt of Americans over the age of 50 was three times higher than in 1989, especially for housing, credit card and student loan debt. While many may think that student loan debt only afflicts young people, our calculations underscore the growing concern that older people have about education loan debt (Barbara Schuster,). Calculations based on the Schwartz Center for Economic Policy Analysis Consumer Finance Survey, 1992-2019) For households headed 55-64 years).
Student loan debt is the fastest growing type of debt for older Americans
Student loan debt is not the most common type of debt among older American households, but it is the fastest growing debt category since 1992. Today, more than four times as many older households as they did 30 years ago have student loan debt (12.2% 2019 vs. 1992 2.9%). At the same time, the median student debt-to-income ratio almost doubled from 15.8% in 1992 to 28.4% in 2019. In short, older people spend far more money on student debt repayments than they did thirty years ago.
For older households, the problem is exacerbated. Elderly white households had 11% of student debt compared to 18% of older black households. Also, the median student debt-to-income ratio is 46% for black households and 29% for white households.
According to a good study at Boston College’s Retirement Research Center, monthly student loan payments reduce retirement plan contributions. In 2019, the median unpaid student loan debt of older households was $ 24,000, a whopping 90% of the median retirement savings of $ 30,500. In other words, repayment of a student loan requires 90 percent of retirement savings. This does not leave much to everyday needs, not to mention unexpected emergency costs.
Low-income elders are further hurt by student debt
The proportion of older households with education debt has increased in all income groups over the last three decades, with the worst impact on the bottom 50% of the income distribution. Low-income households are more likely to experience debt stress and retirement anxiety because they must spend a significant portion of their income on debt repayment and therefore cannot save for retirement.
According to our calculations, the median education debt-to-earnings for households is 69% for the bottom 50% of households in the revenue distribution, 23% for the middle 40%, and only 8% for the top 10%. This new source of debt enhances existing inequality in post-retirement security, as the bottom 50% of older households are disproportionately predominantly black and Hispanic.
More than half of older households with student loan debt have education loans for their children and grandchildren
More than half of older households with student loan debt fund the education of their children and grandchildren. Therefore, instead of saving for their retirement, older Americans are paying student loans for their children. In addition, because there is no limit to the size of Parent PLUS loans, parent loans are often much larger than student loans, putting additional financial stress on the elderly. This debt puts pressure on older people to work longer and may eventually postpone retirement to continue working to repay their debt. Working longer may seem like a good plan until it’s gone.
Covid-19 exacerbates debt accumulation upon retirement
The recession in Covid makes it even more difficult for older households to pay off their steadily increasing debt burden. Even in “normal” hours, older workers have less control over the time they work (or how much they can save) than some people think. About half of older workers are expelled from the workforce in normal times. However, the Covid-19 pandemic has forced 1.7 million older workers to retire unknowingly or not ready to remain financially viable.
As mentioned earlier, older households, especially older black households, have fallen into this recession with more debt than ever before. Now, to make things worse, older workers are also more likely to be forced to retire with less savings due to the Covid-19 recession. Of course, without a stable income, this makes it harder for older Americans to repay their debts-especially those in colors with higher debt levels-says they meet their basic needs. Not even.