More than 2.2 million Americans over age 55 have outstanding student loan dept that hinders their ability to save for retirement and to eventually retire, according to new research released this week.
The New School Schwartz Center for Economic Policy Analysis (SCEPA) released the research, “How Student Debt Impedes Retirement and Financial Security for Older Workers—And How 2024 Elections May Impact Policy Reforms,” on Aug. 14. With the presidential election less than 90 days away, SCEPA analyzed policies on student debt and loan forgiveness from Democrats and Republicans.
“Based on the policy evidence, a Republican-controlled Congress and presidency would likely deprioritize or halt student debt reforms, to the detriment of the millions of older Americans whose ability to retire is tied closely to student loan forgiveness,” said a press release about the research. “Evidence suggests that a Democratic administration and Congress would continue supporting reforms addressing the student debt crisis.”
The research notes that half of all student loan debtors over age 55 who are still in the labor force are in the bottom half of income-earners, making less than $54,600. The bottom 50% of income earners also owe the highest average debt ($58,823).
The Survey of Consumer Finances found that older workers aged 55-64 expect to take an average of nearly 11 years to repay their loans, while workers 65 and up will need 3.5 years to pay off their student debt, on average. Older workers’ substantial repayment period and the sizable amounts still owed hinder their ability to retire and save for retirement.
Delinquent federal student loans are one of the few conditions which trigger Social Security benefits to be garnished, further reducing retirement income.
The report calls on policymakers to address this “major financial vulnerability” and offers three key policy interventions to tackle the issue: Loan forgiveness, income-driven repayments, and ending Social Security garnishments.
Loan forgiveness, the paper says, is the most direct way to address the negative impacts of student loans on older workers. “Discharging loan obligations would allow older workers to save their income for retirement, benefiting not only them but their families and communities.”
Under an Income-Driven Repayments (IDR) plan, debtors would only make monthly repayments when their income rises above a certain threshold. Additionally, they would only be obligated to pay a percentage of their income at a time until their loans are repaid. Beyond a certain period conditioned on the amount borrowed, outstanding loans would be forgiven. “This approach would allow low-income older debtors to save for retirement as they would only be required to repay a portion of their income,” the paper says.
Under current policy, people who default on federal student debt are liable to have their Social Security benefits garnished, reducing their retirement income. “Removing this provision would help protect retirees and older workers who are already financially precarious,” the paper says.
The paper also notes that while Democrats generally support these three policies and could be expected to champion them with a win in November, a Republican-controlled Congress and presidency would likely deprioritize or halt student debt reforms.
• Read the full research here.
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