There's a group of student loan borrowers who may need relief more than anyone else: retirees and others who are smothered by student debt in their senior years. Sadly, President Joe Biden's student debt forgiveness plan doesn’t do enough for them.
Like the whole topic of loan forgiveness, it's difficult to craft a solution that's fair to other borrowers who make their payments. But there are ways to provide targeted relief for older Americans whose financial lives are overwhelmed by student debt with little chance of ever being able to repay.
Younger borrowers have years of potential earnings ahead of them, but some of the 2.5 million federal student loan borrowers who are 62 and over may be stuck on a fixed income. As such, they have no way of getting out from under the mountain of debt, usually accrued to pay for additional schooling later in life to earn more money, or to help a child or grandchild attend college.
Unlike other forms of debt, it's near-impossible for federal student loans to be discharged in bankruptcy. While declaring bankruptcy comes with its own issues, it can stop collection efforts and prevent financial spiraling.
And the default rates for older borrowers are dismal, leaving them open to having their Social Security benefits compromised. Almost 40% of borrowers age 65 and older were in default (typically defined as not making a payment in at least nine months) on their federal student loans, according to a 2017 study from the Consumer Financial Protection Bureau. The rates for those 75 and older are closer to 54%, estimates Mark Kantrowitz, a student loan expert, based on figures from a 2014 U.S. Government Accountability Office report. That compares to default rates of just 17% for those under 50.
A recent New Yorker story highlighted how Americans age 62 and older are the fastest-growing segment of student debtors. The article's example of Betty Ann, a 91-year-old with more than $300,000 in debt after attending law school in middle age, may be an extreme, but she's far from alone.
As it currently stands, Biden's plan would reportedly forgive $10,000 for borrowers who earned less than $125,000 a year for most types of federal student loans. That's a start, but most older Americans have balances well beyond that. The Biden student loan program would make other changes that may help seniors, such as a lower cap on the percentage of their discretionary monthly income that goes toward repayment, but the reforms seem to be more focused on undergraduate loans. Many older borrowers have graduate loans or Parent PLUS ones, which don’t seem to be covered.
The solution isn't to just forgive student loan debt entirely for those 65 and over. That could create an unfair situation where those close to age 65 might take out loans knowing they'd soon be forgiven. Sure, no one forced these older borrowers to attend graduate school or pay for their children's educations, but continuing to force some of them into repayment when they clearly don't have the means to do so is a waste of time and resources.
Here are two ways Biden could provide a more direct lifeline to those senior borrowers: Automatically cancel all student debt for those who have been in income-based repayment for more than 20 years, and end the practice of dipping into Social Security benefits for those who default.
It's clear the income-driven repayment program, which is offered to help borrowers with high debt relative to their income, isn't working. It's supposed to provide forgiveness to those who have been in repayment for decades, but just 157 borrowers out of a potential 4 million who have been in repayment for more than 20 years actually had their loans canceled because of administrative difficulties with the program, among other issues.
Earlier this year, the Biden administration said it would make it easier for borrowers to get credit for hitting the 20-year mark, but those changes will just make it more difficult to keep track of things like when payments were made and to which program. It would be so much simpler to just automatically forgive the debt for those who have been in repayment for two decades.
For those who don't participate in a repayment plan or give up and wind up defaulting, there's a scary consequence: They wind up losing some of their Social Security benefits.
After high rates of defaults among student borrowers in the 1980s, reforms were implemented to increase accountability. One of the changes was to allow the Treasury Department to garnish wages or reduce tax refunds or Social Security benefits to recoup loans. For older borrowers who default, up to 15% of their benefits can be in jeopardy (though seniors are guaranteed a minimum of $750 in Social Security a month).
Again, older borrowers tend to be impacted the most by that penalty. Just 2% of borrowers under 50 were seeing their wages or refunds garnished because they were in default, compared with 5% of borrowers age 65 and older, according to a 2017 GAO report. Almost half of older borrowers saw a reduction by the maximum amount, or 15%.
Default rates aren't what they once were, and it's time to stop linking student loan repayments (or a lack thereof) with Social Security, especially for those whose rely most on that source of income. Besides, the program isn't all that effective — just 8% of Treasury's default collections came from Social Security benefits (the majority are from tax refunds) and more than half of older borrowers still had open loans five years after their benefits had been reduced (some even saw their loan balances increase).
To help struggling student loan borrowers, Biden shouldn’t forget the ones who have been dealing with insurmountable debt for decades.
