Millions of older workers in the U.S. have significant student debt that may hinder their ability to retire comfortably, according to recent findings.
06/07/2024 3:50 P.M.
2 minute read
A new study from the Schwartz Center for Economic Policy Analysis (SCEPA) finds that for the estimated 2.2 million people over the age of 55 with outstanding student loans, the promise of financial mobility and enhanced earnings through education is not a possibility. Unlike younger borrowers, older consumers face significant challenges that hinder their ability to reap the purported benefits of their educational investments.
The report finds that a major issue is that older borrowers lack the working years required to earn back their educational investment. Many of these individuals are burdened by loans taken out later in life, often due to job loss or career changes.
Compounding the problem is that over 14% of these older consumers have not completed their degrees, thus missing out on the income boost typically associated with higher education. This phenomenon, known as the “sheepskin effect,” underscores a critical issue: without the credential, the financial return on investment diminishes sharply. Furthermore, the burden of student loan repayment diverts essential income from retirement savings, threatening long-term financial security.
Key findings from the SCEPA study:
- Over 1.4 million older workers and more than 820,000 unemployed individuals aged 55 and above have outstanding student loans, according to the Federal Reserve Board’s 2022 Survey of Consumer Finances.
- Half of the older consumers still in the workforce fall into the bottom half of income earners, making less than $54,600 annually.
- A significant portion of older workers with student debt have not completed their degrees, with 14.9% of those aged 55-64 and 17.2% of those 65 and older lacking a completed credential.
- Older workers expect to spend an average of nearly 11 years repaying their loans, further diminishing their ability to save for retirement.
Those in the bottom 50% of income earners owe the highest average debt, approximately $58,823, exacerbating their vulnerability. High repayment burdens increase the risk of default, which can lead to the garnishment of Social Security benefits, further reducing retirement income.
Additionally, The Hill reports that the SCEPA recommends three key policy interventions: student loan forgiveness, income-based repayment plans, and the prevention of Social Security benefit garnishment to repay student loans. These policies are critical components of the Biden administration’s Saving on a Valuable Education plan.
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