Struggling Towards Retirement
Student loan debt and its rapid growth has garnered a great deal of well-deserved media attention. Citing data from the U.S. Department of Education and the Federal Reserve Bank of New York, on October 18, 2011, USA Today reported that the amount of outstanding student loans reached record levels. With $1 trillion outstanding, student loan debt passed credit card debt in amount owed. On July 24, 2012, according to a report published by CNN Money utilizing data from the New York branch of the Federal Reserve, there are more than 7 million people over the age of 50 that still have student loan debt. Retirement, for many of these people, may be a struggle.
Collision Course – Student Loan Debt And Retirement
On July 11, 2012, Barclays Bank PLC released a report on the subject, titled Student Loans: The Dark Side of Good Debt. Drawing data from that report, a July 12, 2012, Chicago Tribune article revealed “that 15.5 percent of outstanding student loan debt is owed by people 50 and older, including 4.2 percent held by people 60 and older.” According to Barclay figures, $18,250 is the average amount of student loan debt carried by those 60 years of age and older. Quoting Cooper Howes, an analyst for Barclays, the Chicago Tribune explained that the above 50 age group also has a higher percentage – 16.9 percent – of “past-due balance outstanding” than do younger age groups.
There are multiple reasons that so many older people are still dealing with student loan debt. In some cases, people are still struggling with their own, original college loan debts from decades ago. The recent bout of economic turmoil resulted in many lay-offs. This led many mid-career, middle-aged people to seek loans to return to school, hoping to gain better employment opportunities. Some of the student loan debt that older Americans are carrying is the result of co-signing education loans for children and grandchildren. This looming debt has made retirement planning difficult for many. Those retiring with delinquent student loan debt face having their Social Security benefits garnished under the Debt Collection Improvement Act of 1996.
Probably one of the most frustrating elements of this for many older people is that, with interest, fees, and penalties, they often find themselves paying back many times over the amount of the original loan. And, worse yet, some even find that even after making years upon years of payments, they still owe more than the amount originally borrowed. Those entering retirement with such debt are often not as prepared for retirement as they should be, and wonder how they are going to make it, especially if retirement benefits are garnished. Despite the difficulties faced by older people carrying student loan debt, most legislative efforts have been focused primarily on new graduates.
Debt Prioritizing And Strategy
That leaves those beyond the new graduate stage with tough personal finance decisions to make. With an assortment of debt obligations to deal with – student loan debt, mortgage debt, credit card debt, and perhaps even an automobile loan – it can be tempting to skimp on retirement planning and saving. Some people even dip into retirement plans, such as 401k plans and IRA accounts, to pay off student loans. Experts today advise against this, saying that even with student loan debt, saving for retirement should be the priority. That is especially true for those nearing retirement age. However, that does not mean that student loan debt should be ignored.
Student loan debt cannot be dealt with by filing bankruptcy and there are few options. However, other debts do come with options. But, there has to be a plan. Therefore, an accurate assessment of the current financial circumstances, is the first order of business, debts, expenses, and income. The time has come for a disciplined spending plan. The amount of money that should be set as a monthly retirement savings goal will depend on how far a person is from retirement and how much has already be set aside. Expenses will probably have to be cut as much as possible to help achieve that goal. A part time job or small scale home-based business could add income.
Further reductions in the monthly outflow of cash can be achieved by negotiating with non student loan creditors. A non profit credit counselor can be very helpful during this process. In addition to a reduction in interest rates, a skilled negotiator may even be able to get a significant reduction in the principle of outstanding loans. In some circumstances, debt consolidation may make financial sense as a way to deal with consumer debt. These efforts can free up money that, after meeting retirement planning goals, can be applied to student loan payments. With this approach, the debt obligations of the past can be met without leaving planning for the future until it is too late.
The closer a person gets to retirement age without taking a proactive stance to the problem of student loan debt, the more difficult it will be to work it out. A person passing 50 with student loan debt still has time to work that situation out and plan for retirement. It will take hard work, but the effort will be rewarded with a more peaceful, enjoyable retirement period. And, hopefully, experienced adults will do the younger generation a good deed by helping them to carefully analyze their education choices, both in terms of the financial viability of their course of study and their means of financing it. If a degree is going to incur such great expense and debt, it should have a strong market value with a solid return on that investment.
Here are two great resources to help with student loans and loans in general: