Opinion: Student Debt Draining Retirement Income

Lots is written about students exiting college saddled with hefty student loans; however, the impact on retired parents went largely unnoticed.

Recently, Wall Street Journal writer AnnaMaria Andriotis reported Americans over 60 years old are coming out of retirement and going back to work just to pay for their children's education.

On average student borrowers in their 60s owed $33,800 in 2017 up 44 percent from 2010. Student loan debt for seniors rose 161 percent between 2010 and 2017. It was the largest increase of any group.

Why the shift to parents? In 2008, lenders started requiring moms and dads to co-sign for college loans.

As a result, seniors are finding themselves working deeper into their retirement years and are holding on to jobs that younger adults would normally take.

Older financially-strapped Americans are relying more on credit cards and personal loans just to pay their normal living expenses. Unfortunately, people over 65 account for a growing share of bankruptcy filings.

Last October, Bloomberg reported federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. "As the costs of tuition and borrowing continue to rise, the result is a widening default crisis that even Fed Chairman Jerome Powell labeled as a cause for concern."

All told, there's a whopping $1.5 trillion in outstanding student loans and, according to the Federal Reserve, the number keeps growing.

Bloomberg concluded: "The cost of borrowing has also risen over the last two years. Undergraduates saw interest on direct subsidized and unsubsidized loans jump to 5 percent this year—the highest rate since 2009—while students seeking graduate and professional degrees now face a 6.6 percent interest rate, according to the U.S. Department of Education."

What can be done?

Many parents have refinanced their homes which carry much lower interest rates. However, that impacts seniors many of whom anticipated burning their mortgage before collecting Social Security.

Since a big chunk of student loans are to those who drop out of school, parents and students need to carefully consider if a four-year university is really for them. Community college tuition is more affordable and offers high school graduates an opportunity to look at a greater diversity of career options.

For example the U.S. Bureau of Labor Statistics report there are 6.7 million good paying jobs going unfilled in construction, manufacturing, health care and transportation——career options offered at community and technical colleges. These are well-paid jobs that prospective employers will often help reimburse tuition and provide on-the-job training.

A challenge for our four-year universities is finding ways to lower tuition.

Since the 1970 tuition has skyrocketed by 1,000 percent while the consumer-price index has risen by 240 percent, according to 2015 data. By 2010, the percentage of annual household income required to pay the average private four-year tuition reached 36 percent, up from 16 percent in 1970.

Meanwhile, university endowments continue to rise. Hundreds of U.S. universities made strong returns on their financial investments last year, the Associated Press reported. A survey of more than 800 colleges and universities found that their endowments returned an average of 8.2 percent in 2018, down from 12.2 percent in 2017.

To help focus on degrees which lead to employment, some universities are eliminating programs. Others are streamlining courses leading to degrees and sequencing them in a way that students are able to graduate on time.

Andriotis' article is timely. Seniors also worry about the viability of their retirement plans. State and federal lawmakers are now scrambling to deal with an estimated $4 trillion shortfall in retirement savings plans, Bipartisan Policy Center reports. Stay tuned.