With student-loan payments resuming after a three-and-a-half-year pause, young people aren’t the only ones feeling the pressure. There are also a significant number of older borrowers who are not ready for payments to resume on Oct. 1, according to an AARP Foundation survey.
People 50 and older make up 20% of all student-loan borrowers, yet they owe 25% of all outstanding debt, amounting to $411 billion, said the foundation, which is the charitable affiliate of AARP.
“Most people think of student loans as a young person’s problem. We’re trying to let older borrowers know that there’s 9 million other folks in the same situation. People often feel embarrassment, but we have to normalize people having and dealing with this debt,” said Nicole Heckman, the vice president of benefits-access programs at the AARP Foundation.
“Student debt ranks below the essentials like housing, but is characterized as a low-level stressor that’s always there,” Heckman said.
The national survey looked at adults 50 or older who live at or below 250% of the federal poverty level and have at least $1,000 in federal student-loan debt, in an effort to understand their situation as payments resume next month.
More than half of those surveyed don’t know their options for reducing their payments, the foundation said.
A total of 76% of survey respondents said they were very to extremely concerned about payments resuming considering their current financial situation.
The median student-loan payment is $222 a month, according to the Federal Reserve, and the average payment is $393. The average Social Security retirement benefit is $1,543 per month — and for 25% of older adults, Social Security represents 90% of their income.
Add to that the fact that more than 1 in 13 borrowers are behind on other payment obligations — a higher rate than before the pandemic — due in part to higher interest rates and inflation. Being behind on other payments is a risk factor for becoming delinquent on student-loan payments, the AARP Foundation said.
More than half of the survey respondents were not enrolled in an income-driven repayment plan and were not familiar with these types of plans. And 60% of respondents were interested in reducing their monthly payments, 45% were interested in what’s known as Total and Permanent Disability Discharge, and 34% were concerned about preventing Social Security or wage garnishment, the AARP Foundation said.
How to get help
There are two programs to help borrowers who may be subject to potential garnishment of wages or Social Security benefits, the foundation said.
Fresh Start offers a one-time opportunity to get out of default by enrolling in a income-driven repayment, or IDR, plan. Borrowers must enroll by the end of 2024. The program is run by the U.S. Department of Education and offers special benefits for borrowers who have federal student loans in default.
About 80% of borrowers enrolling in Fresh Start choose an IDR plan that customizes monthly payments to their income, with borrowers never paying more than 10% to 20% of their income. Half of the borrowers in Fresh Start pay nothing each month, and 60% are paying less than $50 a month, according to the Department of Education.
Meanwhile, the Saving on a Valuable Education Plan, like other IDR plans, calculates monthly payment amounts based on income and family size. Borrowers who earn less than $15 an hour will not be required to make payments, and those who do earn more than that will save more than $1,000 a year on payments.
The SAVE Plan also ensures that borrowers will never see their balance grow due to unpaid interest as long as they keep up with their payments.
The AARP Foundation is working with Savi, a financial-technology firm, to help older borrowers to navigate the student-loan repayment programs and to file applications. There is no cost for low-income debtholders.
“Awareness of the programs is still really low,” Heckman said. “For people trying to save for retirement at the same time [as they repay student loans] or live in retirement, it all becomes unmanageable. We’re grateful there are options to reduce the burden.”