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From the housing crises to the downsizing crises to the unemployment crises, there seems to be no shortage of calamities available to rock the retirement plans of Americans as they inch their way into their golden years. As if to prove that fact, Baby Boomers are now finding themselves engulfed in a Student Loan Debt crisis that has begun to rear its head over the past decade.
A number of factors account for this growth, and all of them threaten to overturn the retirement dreams of an increasingly large swath of the over 50 crowd. As a measure of how dire the situation has become, Americans in their fifth decade, and older, held more than $112 billion in student loan debt at the end of 2012.
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The Great Recession
As the economy sharply contracted during the Great Recession, the job market shed hundreds of thousands of jobs at an alarming clip month after month. Ominously, many of the jobs that were lost are unlikely to ever return and have led laid-off workers to scramble in an effort to update their skills in an attempt to retrain the workforce to deal with this new economic challenge.
For newly unemployed older workers, this transitionary period saw them reentering the nation’s educational institutions to help burnish their dated resumes. Financing this effort was complicated by a drop in personal savings, housing values, and stock holdings that tumbled along with the general decline of the economy. With a lack of personal resources and a general contraction of available credit, many of these reentering scholars looked to the Federal Student Aid Commission to help underwrite their education. Due to a near iron-clad backing by the federal government, lenders responded with alacrity to extend educationally based loans however, now payments on those loans are coming due and casting a long shadow over Baby Boomer’s retirement plans.
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Factors Leading to Huge Debts
Several factors have coalesced to create a “perfect storm" when it comes to amassing student loan debt for older Americans. First, many of these recently enrolled higher education students represent a population that is returning to the classroom years after already earning a post-secondary degree. As such, under the Federal Student Aid Commission’s guidelines, they are ineligible to apply for government grants, so a career pivot that requires a different degree field needs to be completed on the student’s dime. That being said, the federally-secured, student loan program is the only available option for funding that degree acquisition.
Second, whereas the average student loan amount was $3,600 a semester a generation ago, now the loan checks being cashed average $5,500 per academic term. As such, this borrowing propensity has yielded an average total student loan debt of upwards of $25,000 per student. Since the employment situation is still on shaky grounds, the requirement to start repaying this obligation within six-months of graduation is leading to default rates at an alarming pace.
Finally, the growth in for-profit, private universities have provided a host of educational alternatives for the non-traditional student, but the for-profit nature of the institutions translates into a higher price tag for the student looking to finance their education.
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Retirement Slipping Away... the Ripple Effect
For the newly minted college graduate, regardless of their age, the obligation to start repaying their loans begins within 180 days of graduation. When this commitment is unable to be met, the student falls behind on their payment schedule and can have financial implications that might last for decades. As mentioned, federal student loans are guaranteed by the federal government, and are nearly impossible to discharge through bankruptcy proceedings. Whereas a 20-something graduate has the decades available to meet their payment obligations, the 60-something graduate simply doesn’t have that many decades remaining to set things right.
The specter of student debt has replaced the visions of a comfortable retirement for many older Americans. However, there are some things they can do to improve their financial situation. Anyone over 50 should continue to contribute to a retirement account. As for paying off debt, they may want to explore different payment options, and can inquire as to whether their interest rates can be lowered. Additional tips can be found in this article on Negotiating Payment of a Student Loan.
- How to Deal With Student Loan Debt When You're Over 50 http://www.huffingtonpost.com/2013/07/01/student-loans-debt-tips-for-older-americans_n_3527951.html
- Baby boomers may die with college debt http://money.msn.com/now/post.aspx?post=6fe668fd-0119-4caa-8f4e-661a9da41a58
- Parents face the student loan double whammy http://www.usatoday.com/story/money/business/2013/09/02/parents-student-loan/2749233/
- Rising Student Debt Burdens: Factors Behind the Phenomenon http://www.brookings.edu/blogs/jobs/posts/2013/07/05-student-loans-debt-burdens-jobs-greenstone-looney#
- 60 and Still Not Out of Student Loan Debt: Seniors Facing $36 Billion in College Loans http://business.time.com/2012/04/03/60-and-still-not-out-of-student-loan-debt-seniors-facing-36-billion-in-college-loans/