Student Loan Debt Takes a Huge Financial Toll on Seniors

Published in the Woonsocket Call on May 26, 2019

As the 2020 presidential campaign heats up, Democratic candidates are zeroing in on a key domestic issue for 44 million voters, carrying $1.5 trillion in student-loan debt. Their proposals range from free-public college for anybody, forgiveness of all college loans up to $50,000, free community college, to refinancing college loans.

With the national political spotlight put on student-loan debt, many are assuming that this issue impacts only younger Americans. That is not the case. A newly released AARP Public Policy report says it’s a skyrocketing problem impacting multiple age groups. Over recent decades, the report highlights the important role that older Americans play in financing college education for their children, grandchildren and other family members.

Federal Reserve data show that Americans owed $1.5 trillion in student loan debt as of December. An updated analysis shows people aged 50 and older owed 20 percent of that total, or $289.5 billion, a more than fivefold increase from $47.3 billion in 2004.

According to the PPI findings, of those age 50 and over who helped pay for ‘someone else,’ 80 percent helped a child, compared with 6 percent who helped a spouse or partner; 8 percent, a grandchild, and even smaller percentages ‘who helped other relatives or friends.’

Student Loan Debit Hits Seniors Hard in their Pocketbooks

“It is stunning that more families are taking on such sharply greater amounts of student debt than in the past,” says Lori Trawinski, director of Banking and Finance at the AARP Public Policy Institute, in a May 15 statement released with the report, “The Student Loan Debt Threat: An Intergenerational Problem.”

“For younger families, this burden impedes their ability to save for other purposes, such as for a home, their children’s education or for their own retirement,” adds Trawinski, who warns that the long-term financial security of seniors can be threatened by student loan debt.

The researchers noted that most older borrowers hold loans taken out for their own education, and the percentage of borrowers aged 50 and older in default is much higher than for younger borrowers. Data also show that Parent PLUS (direct federal loan) borrowers aged 65 and over are facing higher rates of default than younger age groups, they say.

The 10-page PPI report includes survey results that focus on the key role played by age 50 and older Americans in helping “someone else pay for college and other post high school education.”
(The survey specifically included only those individuals who have not yet fully paid off the debt or who have paid it off within the past five years.)

Of those 50 and over who helped “someone else,” 80 percent helped a child, compared with 6 percent who helped a spouse or partner; 8 percent, a grandchild and even smaller percentages “who helped other relatives or friends.”

One interesting finding of the PPI report was that the most common involvement by people aged 50 and older was cosigning a loan (45 percent), while a smaller percentage (34 percent) ran a balance on a credit card and 26 percent took out a Parent PLUS loan.

Among those who co-signed a private student loan, nearly 49 percent made a payment on the loan, often because they wanted to proactively assist the student borrower. Twenty-five percent said they had to make a payment after the student failed to do so.

The survey asked the one quarter of survey respondents who had taken out a Parent PLUS federal loan, and who had made a payment over the prior five years, whether they ever had any difficulty making payments. Nearly a third 32 percent did have a problem with at least one payment. The breakdown by race/ethnicity for those having a problem with a payment was: African-American/Blacks, 46 percent; Hispanics, 49 percent and whites, 29 percent.

Rhode Island Lawmakers Put Student Loan Debt on Radar Screen

Over a week ago, the Senate Finance Committee took testimony on S 0737, titled the Student Loan Bill of Rights. The legislative proposal, sponsored by Sen. Dawn Euer (D), a lawyer representing parts of Newport and Jamestown, would protect student loan borrowers and establish oversight of student loan services operating in the Ocean State. House Health, Education and Welfare Chairman Joseph M. McNamara has introduced the companion measure (H 5936) in the lower chamber.

“The heavy burden of student debt is challenging enough for the majority of college graduates. Incompetent, inefficient or even deceitful loan servicers should not be allowed to exacerbate their struggles. Student loan servicers must be held accountable to ensure that they are providing honest, reliable information and services to their borrowers,” said Senator Euer (D-District 13, Newport, Jamestown), in a Senate press release announcing the held Senate Committee hearing.

According to a press statement, more than 133,000 Rhode Islanders, including 16,000 senior citizens, have a combined $4.5 billion in student loan debt. Over $470 million of Rhode Islanders’ student loan debt is delinquent.

S 0733 would set standards for student loan serving, both prohibiting predatory behavior and providing best practices for protecting consumers’ rights. It also requires student loan servicers register with the state and allows state regulators to examine servicers’ business practices. Additionally, the Senate bill allows both the Attorney General and department of business Regulation to penalize servicers who violate borrow rights and to seek restitution on behalf of borrowers in Rhode Island. It would also require better communication from lenders to borrowers about any transfer of their loans to another institution and about any alternative repayment or forgiveness program for which the borrower may qualify.

Borrowers in Rhode Island report being double-charged or incorrectly marked as delinquent in payment, with loan servicers taking months, or ever years, to correct mistakes. Additionally, many student loan borrowers eligible for the national “Public Service Loan Forgiveness” program have received incorrect and contradictory information from their loan servicers, leading to improper denials of loan forgiveness.

Calling for Passage of Rhode Island’s “Student Loan Bill of Rights

Bill sponsors Euer and McNamara were joined by Treasurer Seth Magaziner, Attorney General Peter Neronha, Commissioner of Postsecondary Education Brenda Dann-Messier and department of business Regulation Director Liz Tanner, on March 28 at the statehouse to push for legislative fix to protect Rhode Islanders who are shouldering crushing student loan debt.

“By several measures, student loan debt has increased greatly in the last 10 years,” said McNamara at the news conference. “It has surpassed the amount households owe on auto loans, home equity loans and credit cards. This legislation will help to address the crisis by establishing oversight of the student loan process and prohibiting predatory practices,” he noted.

Euer added, “The heavy burden of student debt is challenging enough for the majority of college graduates. Incompetent, inefficient or even deceitful loan servicers should not be allowed to exacerbate their struggles. Student loan servicers must be held accountable to ensure that they are providing honest, reliable information and services to their borrowers.”

Treasurer Magaziner threw in his two cents. “Too many Rhode Islanders are vulnerable to deceptive and predatory practices by their student loan servicers, who make it hard for borrowers to keep their loan payments affordable.” He added, “Too often, borrowers aren’t receiving accurate information about their loan, which can result in higher interest, leave them in debt longer, and make them more likely to default. This legislation will hold student loan servicers accountable and help Rhode Islanders choose the options that are best for them.”

Finally, Attorney General Neronha touted the importance of passing the Student Loan Bill of Rights. “If and when borrowers have issues with their loans or loan servicers, this legislation provides them with a place to go to address those issues. While our primary focus will be on helping Rhode, Islanders get the information they need to solve their student loan problems, my office will be ready, on behalf of mistreated borrowers, to investigate and enforce violations of the student loan standards outlined in this bill.”

If Congress can’t tackle the student loan debt crisis, in a timely fashion, it is now time for Rhode Island lawmakers to offer assistance to Rhode Islanders faced with crippling student loan debt. The Rhode Island General Assembly should pass Euer and McNamara’s “Student Loan Bill of Rights.” and the legislative proposals should not “be held for further study. It’s the right thing to do.