Alexis Leondis Opinion Bloomberg
There is a group of student borrowers who perhaps need help more than anyone else: retirees and others who are suffocated by student debt in their later years. Unfortunately, President Joe Biden’s student debt cancellation plan isn’t doing enough for them.
Like the whole subject of loan forgiveness, it is difficult to find a fair solution for other borrowers who are making their payments. But there are ways to provide targeted relief to older Americans whose financial lives are overwhelmed by student debt with little chance of ever being able to repay.
Young borrowers have years of potential income ahead of them, but some of the 2.5 million federal student loan borrowers age 62 and older may be stuck on a fixed income. As such, they have no way out of the mountain of debt, usually accrued to pay for further education later in life to earn more money or to help a child or grandchild attend school. ‘university.
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Unlike other forms of debt, it is almost impossible for federal student loans to be discharged in the event of bankruptcy. Although declaring bankruptcy has its own problems, it can stop collection efforts and prevent financial spiraling.
And default rates for older borrowers are dismal, leaving them open to having their Social Security benefits compromised. According to a 2017 study by the Consumer Financial Protection Bureau, nearly 40% of borrowers aged 65 and over were in default (generally defined as not having made a payment for at least nine months) on their student loans. federal. Rates for those 75 and older are closer to 54%, estimates Mark Kantrowitz, a student loan expert, based on figures from a 2014 US Government Accountability Office report. That compares to default rates only 17% for those under 50.
A recent New Yorker story highlighted how Americans ages 62 and older are the fastest growing segment of student debtors. The example in the article by Betty Ann, a 91-year-old woman with over $300,000 in debt after attending law school in middle age, may be one extreme, but she is far from the only.
As it stands, Biden’s plan would award up to $20,000 to borrowers who made less than $125,000 a year. It’s a start, but most older Americans have sales way beyond that. The Biden student loan program would bring other changes that could help seniors, such as a lower cap on the percentage of their discretionary monthly income that goes towards repayment, but the reforms appear to be more focused on undergraduate loans. Many older borrowers have Graduate or Parent PLUS loans, which do not appear to be covered.
The solution is not simply to completely forgive student loan debt for those 65 and over. This could create an unfair situation where people approaching the age of 65 could take out loans knowing that they would soon be forgiven. Of course, no one has forced these older borrowers to go to college or pay for their children’s education, but continuing to force some of them to repay when they clearly cannot afford it is a waste of time and resources.
Here are two ways Biden could provide a more direct lifeline to these senior borrowers: Automatically cancel all student debt for those who have been repaying based on income for more than 20 years and end the practice of dipping into security benefits. social for those who are lacking.
It is clear that the income-tested repayment program, which is offered to help borrowers with high debt relative to their income, is not working. It is supposed to grant forgiveness to those who have repaid for decades, but only 157 borrowers out of a potential 4 million who have repaid for more than 20 years have actually had their loans canceled due to administrative difficulties with the program, among other things. problems.
Earlier this year, the Biden administration said it would be easier for borrowers to get credit for hitting the 20-year mark, but those changes will make it harder to track things like when payments are made. were carried out and on which programme. It would be so much easier to automatically erase the debt of those who have been in repayment for two decades.
For those who don’t participate in a repayment plan or drop out and end up defaulting, there’s a scary consequence: they end up losing some of their Social Security benefits.
After high default rates 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 recover loans. For older borrowers who default, up to 15% of their benefits may be at risk (although seniors are guaranteed a minimum of $750 in Social Security per month).
Again, older borrowers tend to be hit hardest by this penalty. According to a 2017 GAO report, only 2% of borrowers under 50 had their wages or repayments garnished because they were in default, compared to 5% of borrowers 65 and older. Almost half of older borrowers saw a reduction in the maximum amount, or 15%.
Default rates aren’t what they used to be, and it’s time to stop tying student loan repayments (or lack thereof) to Social Security, especially for those most dependent on this source of income. Also, the program is not very efficient – only 8% of Treasury default collections came from Social Security benefits (the majority comes from tax refunds) and more than half of older borrowers still had loans. opened five years after the reduction of their benefits. (some even saw their loan balances increase).
To help struggling student borrowers, Biden must not forget those who have struggled with insurmountable debt for decades.