Seniors Who Defaulted on Their Student Loans Feel Hopeless

They remain financially insecure after years of hardship
Blog Post
Older Americans look at their phones and their bills.
Aug. 1, 2023

This blog is the third in a four-part series focused on older Americans with student debt. The first post finds that many older borrowers are repaying debt from their own education. The second post uses survey data to explore the demographics and financial well-being of seniors repaying their college loans. Our final post suggests policies to provide relief to older borrowers.

Maya was born in the late 1960s to a Midwestern family that sometimes struggled to make ends meet. Around the time she was born, the federal government began guaranteeing student loans and providing Pell Grants to low- and moderate-income students to help them access higher education. In the late 1980s, Maya enrolled in a public college near home using a Pell Grant to cover her tuition, fees, and books, paired with a moderate amount of student debt to cover her living expenses.

She earned an associate degree in computer science and began the coursework for her bachelor’s degree. Five years later, when she was a few classes shy of completing her BA, she went into labor prematurely. Maya had to leave her program to care for herself and her new baby and was unable to return and complete her degree. Almost thirty years later, she is still repaying her loans, and today, she owes more than double what she initially borrowed.

The number of older student loan borrowers like Maya has grown exponentially over the past several decades. Our earlier analysis shows that many of these borrowers hold debt for their own education, and they are disproportionately likely to be people of color, women, and financially insecure. Many have been in the student loan system for decades, unable to pay down their debt after not receiving a return on their higher education investments. Some attended low-quality programs, others did not complete a degree or credential, and too many have faced racism and discrimination in the labor market.

Statistics from the federal government also tell us that older borrowers are twice as likely to be in default: almost a third of seniors who hold student debt were in default before the pandemic payment pause. While we are starting to know more about who holds college debt as they approach retirement age and why, we know less about their lived experiences. In the summer of 2022, New America commissioned focus groups with borrowers across the country who were in or had experienced student loan default. (An analysis of the focus groups, which included borrowers of all ages, can be found here.) In this blog, we use quotes and stories from participants over the age of 50 to fill this information gap about Americans approaching retirement age who are still repaying student debt.

College Did Not Pay Off, and These Seniors Were Financially Insecure

After Maya gave birth to her daughter in the mid-1990s, she struggled to find her financial footing. She described her experience as a “major life-changing event that took me out of school, out of the workforce.” With a new baby and medical fees to pay, she had trouble affording all of her bills, including the ones that started coming for her student loans.

Financial insecurity was also a theme for the other older focus group participants. Leanne, a single parent who went to college in her forties, struggled to afford the basics for her children after her associate degree from a for-profit college did not lead to a paralegal job. She returned to school for more education, which meant more time out of the labor force and more debt. Another borrower said that he fell behind on his loans when knee pain led to two surgeries that kept him from working. And Xavier, a father who attended a for-profit school that was later sued for predatory tactics, explained that he had to choose which bills to pay each day. Before repaying his loans, he asked himself “Do I have food on the table? Gas in my car?" Often the answer, for Xavier and the other older focus group participants, was no.

Leanne’s Story

Leanne is still angry when she thinks about her college experiences nearly two decades later. She first pursued college in her forties as a single mother, earning her associate degree in paralegal studies from a for-profit college and then a bachelor’s degree in business. The expensive classes that did not teach her employable skills, the large amounts of debt that followed, and the hard times after graduation—including defaulting on her student loans—made her feel like the entire system was a scam. She explained, “they take advantage of you because they know you’re poor and they know you’re desperate.”

Today, in her 50s, Leanne works as a sales representative with a paycheck that is less than half of her $80,000 student debt load. Every month, she struggles to raise her kids and pay her bills, explaining that, “you make an effort, you go to school, raising kids, cleaning, and cooking…we go through all of that and we still have to sacrifice." She worries that she will be sacrificing for the rest of her life.

They Were Not Well Served by the Repayment System

The student loan system has built-in safeguards that are supposed to protect borrowers who struggle to repay their loans. Income-driven repayment (IDR) plans—which tie payments to income and family size, often result in lower payments, and offer forgiveness after a certain number of eligible payments—have been available for at least some borrowers since the mid-1990s. The IDR program has expanded to include more plans, more borrowers, and more generous terms over the last 15 years; more recently, the Department of Education has made a concerted effort to fix failures in the system and increase the uptake of this repayment option. But historically, many borrowers have struggled to access these plans, to remain in them, and to pay down their debts over long periods of time.

In addition to IDR plans, borrowers can pause payments through deferments and forbearances and have their loans discharged or forgiven if they have been defrauded by their schools, experience a disability, or meet several other criteria. But all of these safeguards ultimately failed Maya and others when they most needed help. Maya explained that despite her premature baby, “nobody told me about hardship deferment,” an option that allows borrowers to pause loan payments during periods of low income. Leanne also felt she was provided information that she “didn’t think was right” when she reached out for help affording her loans. In addition, several older borrowers, like Derrick, did not realize that they might be eligible to have their loans discharged.

Derrick’s Story

For Derrick, playing with his two children is the joy of his life. In his late 30s or early 40s, he went to community college to pursue a degree to help him earn more to support his family. He took out loans because he could not work, care for his first daughter, and attend school all at the same time. But tragedy struck while he was at school—Derrick was shot in the back. While he survived the gun violence, he was unable to finish his degree.

Now in his 50s, his back injury makes it impossible to hold a full-time job, but he does what he can to make ends meet. Every month, he has to think about which bills to pay and which can be put off. Derrick’s loan servicers and debt collectors are in touch frequently, but his student loan bills often go unpaid, and his interest keeps growing. During the focus group, Derrick said he was unaware of the total and permanent disability discharge program, which may have provided student loan forgiveness based on his inability to work. When asked when he expected to pay off his loan, his answer was “never.”

While IDR lowers payments for many, it did not protect the focus group participants from default because they typically did not access the plans when they needed relief. This was because borrowers were not aware of these plans or they found the program complicated, hard to access quickly, or still not affordable. Recent research from New America indicates that vulnerable borrowers, including older Americans, are the least likely to know about IDR. Some borrowers instead enrolled in more readily available, shorter-term forbearances when they struggled to repay and defaulted after they exhausted their eligibility. A few participants, like Maya, only learned about IDR after spending months or years in default.

Default Made Borrowers’ Financial Challenges Worse

Short on money and unaware of her options for relief, Maya defaulted on her student debt. Her loans sat in default for more than a decade while the government withheld her tax refund to repay her debt. She wanted to return to school to finish the degree she had been so close to receiving and boost her earning power, but she found herself ineligible for financial aid. Other older focus group participants had similar stories about the punishing effect of additional consequences of default, including wage garnishments and damaged credit scores. And, according to the U.S. Government Accountability Office, over 100,000 older borrowers also have to cope with losing their Social Security benefits while in default.

While in default, Maya reported getting occasional calls from the collection agency, but rarely picked up because she knew she could not afford to make any payments. After more than ten years, she learned about and completed the process to bring her loans out of default. She then signed up for an IDR plan and has qualified for $0 monthly payments in each subsequent year. But we spoke to other older borrowers who remained trapped in default and subject to penalties that pulled them further into poverty. They often found it challenging to know where to turn for relief and to make payments. The interactions they did have with servicers, collectors, and the Department of Education left many confused and without adequate aid or an understanding of their limited options to return their loans to good standing.

Xavier’s Story

Xavier is a father who works as a graphic designer and runs a non-profit coaching youth sports. But he does not credit his successes to his college experience, which put him in “a financial bind which is tough to climb out of.” More than ten years ago, Xavier attended a for-profit college where he earned his associate degree. Right after he graduated, his school lost its accreditation and his local campus closed, leaving Xavier with “a piece of paper that means absolutely nothing.” The one silver lining was that he met his wife—through their class action lawsuit against the school.

Today, Xavier works hard to help make ends meet for his family. When his last dollars are needed for essentials, his student loans go unpaid. But student loan default, and the wage garnishments and damaged credit that followed, just made things worse. He was unaware that he was likely eligible for an IDR plan, which would have lowered his monthly payment. Xavier explained that when he talked to servicers and collectors, "I was never asked any questions based on what I can afford or given any options. If I was given options, I would've been better prepared to pay."

Borrowers Tried to Repay Their Debts But Saw No End in Sight

Many of the older borrowers in our focus groups had been doing everything they could to make payments and get ahead. One participant put all of his pandemic stimulus checks toward his student debt. Another was looking for a second job to pay back her student loans and make ends meet. Even so, most of these borrowers saw no end in sight. As Derrick explained, even when “you take the loans out with good intentions of paying them back…life happens and things happen and you can't.” Leanne felt like she would never “get out of [debt] unless I have a huge amount of money...I'll never buy a house…I can't get a car loan...I can't do anything.” And another participant approaching retirement felt “like [my student debt] will never go away. Like I'm married to it.”

Maya, whose loan balance had been accumulating interest throughout her time in default (and later in an IDR plan), also cannot imagine getting out of debt. The past 30 years have taken a toll on her finances and her relationships. She has had to have tough conversations about her debt and her damaged credit score with her partner. She has never owned a home and never expects to. When her own daughter reached college age, Maya advised her to think twice before taking out her own loans to attend college.

New America would like to thank the RRF Foundation for Aging for its support of this work.

Related Topics
Higher Education Access and Affordability Higher Education Funding and Financial Aid