Student Debt Hanging Over Older Americans

By Cyril Tuohy

InsuranceNewsNet

Although she didn’t know it 20 years ago, time was a luxury 57-year-old Rosemary Anderson couldn’t afford.

Anderson, an employee of the University of California-Santa Cruz, has more than $126,000 in debt, much of it from student loans incurred more than 20 years ago when she decided to return to school to obtain bachelor’s and master’s degrees, she said.

The interest rate on her consolidated student loans is 8.25 percent, but living expenses and caring for children have delayed repaying interest and principal, she said. She has not been able to pay anything toward her loans for nearly eight years.

“Every year I go through an elaborate exercise of which program will keep me in ‘good standing’ without making a payment and thereby avoiding default,” Anderson said in testimony before a U.S. Senate panel examining the burden of student debt by older Americans.

Anderson, a resident of Watsonville, Calif., said she found it ironic that borrowing money to further her professional chances was the source of her financial unraveling.

She is not alone.

Janet Lee Dupree, 72, of Ocala, Fla., financed her undergraduate degree with a $3,000 loan in the 1970s. She failed to pay back her loan on time, and has since paid thousands of dollars in interest and penalties. Dupree still owes $15,000 on the original loan and, because she is in poor health, she will never pay off what she owes, said Sen. Bill Nelson, D-Florida, chairman of the Senate Special Committee on Aging, which held the hearing.

OK, maybe Anderson and Dupree should have seen a financial advisor. In another life, that’s what they would elect to do. But for the remainder of this life, they are stuck with school debt still hanging over them.

“While many may think of student loan debt as just a young person’s problem, increasingly it’s not the case,” Nelson said.

Americans age 50 and older — baby boomers — make up one of the fastest-growing segments of the student debt market, according to government statistics. That over-50 segment accounts for 17 percent of the nation's $1.2 trillion in student loan debt, a 30 percent increase since 2005, according to the Federal Reserve Bank of New York.

Charles A. Jeszeck, director of education, workforce and income security with the U.S. Government Accountability Office (GAO), said the percentage of Americans 65 or older with household debt increased from about 30 percent to 43 percent from 1998 to 2010.

Over the same period, the median amount of household debt — mostly in mortgages, auto loans and credit card accounts — increased 56 percent, from $13,600 to $21,000, Jeszeck said. But it’s clear that school loan debt is rising as a percentage of household debt.

A separate study by the GAO found that 82 percent of the balances remaining on student loans taken out by people who are now seniors are attributable to loans used to finance their own education, said Sen. Susan M. Collins, R-Maine.

Compared with traditional college students in their 20s, older students have less time to pay back loans should they get into trouble, and older borrowers may be at particular risk of default, said William Leith, chief business operations officer for federal student aid at the U.S. Department of Education.

Because student loans can’t be forgiven, lenders are free to garnish wages and Social Security payments should borrowers end up in default.

The rising debt burdens of older Americans may offer an opportunity for life insurance carriers in search of an emerging need.

Last month, Guardian Life announced it would expand its Student Loan Protection Rider as a coverage option for anyone with student loan debt. Prior eligibility was limited to students with specific loan obligations, such as loans incurred in the course of studying to become a doctor, lawyer, pharmacist or financial advisor, according to the company.

Gordon Dinsmore, president of Guardian subsidiary Berkshire Life, which underwrites individual disability income insurance policies, said student loan debt was becoming “one of the biggest financial worries of professionals today.”

The student loan protection rider is available for a minimum of $5 a month for a term of 10 or 15 years, and can pay as much as $2,000 a month in addition to payments made under the underlying disability insurance policy.

The rider is available to policyholders insured through Guardian’s ProVider Plus or ProVider Plus Limited disability income insurance policies.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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