“A student loan can be a debt that’s kind of like a ball and chain that you can drag to the grave. You can unhook it when they lay you in the coffin.” – William E. Brewer in an interview with the Washington Post
(MintPress) – Should you read that quote to a twenty-something across America, there is a good chance they would snicker and nod agreeably, almost acknowledging the potential financial consequences of their higher education. But for another demographic, the statement reads more as a likelihood and less as a “what if.” Of all that’s been said about recent college graduates cascading from a poor job market, there are senior citizens that are the byproduct of what happens when poor job prospects and high student loan debt are combined.
While those under the age of 39 maintain a majority of the delinquent student loans in the country at 59.2 percent, Americans over the age of 60 still owe around $36 billion in student loans, of which 10 percent are delinquent. More than a quarter of all borrowers have past-due balances. The Federal Reserve Bank of New York research also shows that those over the age of 50 are still accounting for 16.9 percent of the past-due student loans in the United States. Those over 50 accounted for 17.1 percent of student loan borrowers in the third quarter of 2011.
The results of the debt have been catastrophic for those who were hoping to plan for retirement and not student loan debt collectors who go as far as garnishing wages and even Social Security checks. A Washington Post story profiled one senior, Sandy Barnett, 58, who explained how she has to choose between food and gas after debt collectors garnished wages from her job as a customer service representative.
And it’s not as though Barnett doesn’t want to get rid of the suffocating debt. In the 1980s, Barnett completed her master’s degree with the help of a $21,000 student loan. After graduation, Barnett struggled to find work amid being laid off, living through unemployment and paying for her husband’s funeral. Late fees as a result of her payment delinquency skyrocketed her outstanding student loan debt to $54,000.
Barnett then declared bankruptcy, but her student loan debt was still the elephant in the room. In the US, student loans cannot be shed through bankruptcy – sticking with borrowers until they are paid off or, as Brewer stated above, “they lay you in the coffin.”
Senate Majority Whip Richard J. Durbin (D-Ill) has embarked on a crusade against the practice of maintaining student loans through bankruptcy proceedings. He has sponsored legislation that would rid borrowers of private student loan debt through bankruptcy. Borrowers would still be responsible for federal student loan repayments.
“It is clear that too many students have been steered into loans that they will not be able to repay and that they will never be able to escape,” Durbin said on Capitol Hill.
In a roundabout way, poor job prospects for today’s younger college graduates have brought on unforeseen debt for their parents. For one 60-year-old mother, the common practice of cosigning on a loan brought her and her granddaughter under a wave of late fees. Maxine Bass inked her name a loan for her granddaughter that fulfilled her dream of going to college. As a low-income family, they had to turn to student loans to cover the tuition. After her granddaughter’s graduation, job prospects that offered a manageable salary were slim and showed little promise, and the loan payments quickly reached past-due status.
After late fees mounted, their original $38,000 loan grew exponentially to $69,000. And because Bass cosigned on the loan, her own finances are risk. Bass said she has no idea how the loan will be repaid when her granddaughter cannot find a job that provides large rough compensation to cover the monthly payments.
It’s for varying reasons such as those that more and more seniors struggle with student loan debt. Some return to school at an older age with the hopes of advancing a prior degree. Some head to college for the first time with the goal of improving job prospects. Regardless of the reason, many turn to student loans to cover the ballooning costs, and many find themselves under water with loans when they are let down by the job market and an 8.3 percent national unemployment rate. In 2008, the unemployment rate for seniors hit a 31-year high.
The times have changed
For seniors reentering the college ranks, using student loans may seem like a no-brainer after they see the sticker shock associated with attending college, growing much faster than the rate of inflation. For seniors who attended college in the mid-1970s, they can expect around a 270 percent increase in tuition today from what they were paying.
Once they graduate, they discover that jobs simply do not pay what they used to for a college degree. In the 1980s, a male college graduate could expect to make the equivalent of $51,223 a year in 2004 inflation-adjusted dollars. The actual average pay in 2004 was less than $50,700 for the same person.
Repayment of student loans has also changed, as there are advantages to federal loan repayment, such as income-based repayment (IBR), which is not an option with private loans. Through IBR, borrowers can cap their repayment amount based on family size and income.
Awareness of the program is up for debate, however. Should borrowers meet specific qualification, they can actually defer their loans until they get a job that would qualify them for repayment. Mark Kantrowitz, publisher of FastWeb.com and FinAid.org, told National Public Radio that defaults can usually be avoided if borrowers know what their options are.
“Income-based repayment is a safety net. If you’re living under 150 percent of the poverty line, your monthly payment under income-based repayment is actually zero,” Kantrowitz said. “So there’s never really any reason why someone should default on their federal education loans, given that they have the availability of something like income-based repayment.”
On March 8, Michigan democrat Hansen Clark proposed the Student Loan Forgiveness Act of 2012 with the goal to “increase purchasing power, strengthen economic recovery, and restore fairness in financing higher education in the United States through student loan forgiveness, caps on interest rates on Federal student loans, and refinancing opportunities for private borrowers, and for other purposes.”
The legislation has resonated with borrowers who look to escape from the debt, as support of the bill has garnered nearly 669,000 signatures through SignOn.org.
The main tenants of the bill say that repayments would be limited to 10 percent of the borrower’s income and would be paid for 10 years. Any outstanding balance after that would be erased and covered by the federal government. The interest rate on those federal loans would be capped at 3.4 percent, half of the current 6.8 percent rate.
Detractors of the measure say the US should not be willing to add to its multi-trillion dollar deficit to forgive student loans, but those for the measure say it’s a way to jumpstart the stagnant economy because those loan payments are keeping people from purchasing automobiles, homes and getting married.
In a January interview with MintPress, Julie Margetta Morgan, a policy analyst with the Center for American Progress, said borrowers are graduating into a world that almost sets them up for immediate failure if they do not find a job right away.
“I think we definitely need to take a hard look at the student loan program itself and see whether there are changes that need to be made,” Morgan said. “Separate from that, we need to look at the situation of graduates who are out there in the job market and struggling.”