Why Do So Many Older Americans Owe Student Loans?

Blog Post
Three older adults worriedly look at their mail and their phones.
May 31, 2023

This blog is the first in a series focused on older Americans with student debt. Our second post investigates the demographics and financial well-being of older borrowers, and our third post tells the stories of some of these borrowers. Our final post discusses policy solutions.

The student debt crisis has dominated headlines recently and for good reason. Credit bureau data shows that the number of student loan borrowers has almost doubled since 2004, and the outstanding value of the debt has quadrupled. This growth has been even more astronomical for those approaching retirement. The number of borrowers aged 60 and over grew six-fold since 2004, while their outstanding debt increased 19-fold. Today, 3.5 million Americans 60 and older hold over $125 billion in student loans.

While the growth in the number of older borrowers is strikingly clear, the reason for the growth remains an open question. Older adults hold different types of student loans for different reasons. Some have federal or private loans that they took out to finance their own education. Adults can also take out federal Parent PLUS loans to cover costs for a child’s undergraduate education, or they can help others secure financing by co-signing private loans. To complicate things further, no single data source captures information on all types of student loans and all repayment details. Despite these data challenges, it is important to understand this potentially vulnerable group, especially as they near retirement and fixed incomes.

This blog draws from several data sources to better understand the factors behind the rise in older borrowers. Our findings challenge the common explanation that the increase is primarily driven by parents taking on debt to finance their children's education. Instead, a significant number of borrowers nearing retirement are struggling to repay their own educational debt. Given the distinct circumstances and needs of these two types of borrowers, our findings have implications for the most effective policy responses.

Most Older Borrowers Have Federal Loans

The available evidence suggests that older borrowers carry much more federal student debt than private debt. Older borrowers’ total student loan balances as recorded by credit bureaus, which tally private and federal student loans, are not much higher than federal balances reported by the Department of Education. In addition, the Federal Reserve Bank of Philadelphia showed that the portion of older Americans' student loans that are co-signed has fallen over time and currently stands at less than 20 percent (almost all co-signed loans are private loans). A 2019 government survey contributes to the evidence despite the small sample size: private loans were found in only 16 percent of households with student loans headed by people over 60.

Most Older Federal Borrowers Took Out Loans for Their Own Education

In 2015, the Government Accountability Office (GAO) published what is still the best data on whether older federal borrowers hold student debt for their own or another’s education. That data revealed about 80 percent of federal borrowers 65 and older had outstanding loans from their own education. Recent data from the Department of Education confirms that most older borrowers continue to have debt from their own education. While the number of borrowers aged 62 and older grew by 800,000 from 2017 to 2022, the number of Parent PLUS borrowers grew by only 100,000.

Together, these facts suggest that half or more of all older borrowers, not just federal borrowers, carry debt from their own education. New America’s 2022 Varying Degrees survey supports this, finding that 58 percent of people 60 or older with private or federal student loans have at least some loans for their own education. (It is important to note that there is one exception to this body of evidence. The Federal Reserve Board’s Survey of Household Economics and Decisionmaking (SHED) reports instead that most older borrowers have debt for a child or relative. The SHED’s findings may include people who choose to informally help relatives with loan payments, leading to an overestimate of the number of older adults with official obligations for another person’s education.)

More Older Students Are Taking Out Debt and Repaying for Decades

What is causing more student borrowers to approach retirement still owing on their loans? The growth does not seem driven by changes in college enrollment among older students. Enrollment patterns among students over 40 have matched overall enrollment trends, although older students' enrollment has fallen particularly steeply since the Great Recession. As a result, there were 20 percent fewer college students over 40 in 2019 than in 2003.

But the students who do attend college later in life have become increasingly likely to take out loans to afford rising tuition and other college costs. According to government-run studies of college students, the portion of students over 40 taking out loans increased from 25 percent in 2004 to 45 percent in 2016. As a result, the number of older students borrowing in a given year doubled.

Once in repayment, many of these borrowers struggle to repay their loans in the standard ten-year timeframe. Like other borrowers, older borrowers increasingly manage their loans with loan forbearances, which delay repayment, and income-driven repayment plans, which can extend repayment to 20 or 25 years. In addition, a large portion of older borrowers, approximately 40 percent of federal borrowers over 65 in 2015, are in default on their loans. These borrowers often do not make repayment progress because interest continues to accrue even as their wages, taxes, and Social Security checks may be garnished. High default rates, like income-driven repayment plans and loan pauses, extend repayment timelines and drive up the number of borrowers that owe student debt into their 60s.

Available data confirm that most older student borrowers attended school later in life and have been in repayment for decades. While sample sizes are small, the Survey of Consumer Finances shows that heads of households over 55 with their own student loans left school when they were in their late-40s. They were in repayment for an average of 14 years, and a quarter had been repaying for 18 or more years. Similarly, a GAO analysis found that more than 40 percent of borrowers over 65 subject to garnishments (a subset of all borrowers over 65) took out their loans 15 or more years ago.

College Debt in Retirement Will Be an Ongoing Challenge

Private loans, loans for children, informal assistance to family members, and trends in enrollment all play some role in the growth of older Americans with loan-related financial obligations. In particular, a significant portion of older borrowers took out debt to help others attend college. This group’s unique needs must be addressed with Parent PLUS loan reforms, better protections for co-signers, additional need-based aid for students, and more resources for underfunded institutions.

But older Americans with their own student debt are an overlooked, large, and likely growing part of the story. Although the Biden administration is rolling out many promising changes to the student loan system—including a more generous income-driven repayment plan, limits on interest accrual, and greater accountability for college quality—these changes are unlikely to address all of the root causes of the growth of older borrowers. Nor will the changes end the financial hardship experienced by the many older borrowers in default. Even after these reforms, many more Americans will reach retirement age burdened by their college debts.

New America plans to delve further into the experiences of older Americans with their own student loan debt in a series of blogs. Our analyses will show that these borrowers are a particularly disadvantaged group who are, as several researchers noted, “no better off than their peers who did not go to college.” We will describe how these older Americans’ struggle to repay their loans—which too often culminates in punishing student loan defaults—disrupts their already financially precarious lives. And we will suggest ways to reform higher education and loan repayment to protect this vulnerable group.

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

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Higher Education Access and Affordability Student Loans