Research show that older workers who are still carrying student loan debt may have a harder time saving towards retirement!
For many Americans, the ability to retire comfortably relies heavily on savings accumulated during their working years. However, new research from the Schwartz Center for Economic Policy Analysis at the New School for Social Research highlights that unpaid student loan debt could jeopardize retirement for millions of older workers.
The study, based on data from the Federal Reserve Board’s 2022 Survey of Consumer Finance, looked at over 2.2 million people aged 55 and older with outstanding student loans. This group includes more than 1.4 million employed individuals and over 820,000 unemployed individuals who have taken on student loan debts, either for themselves or their spouses – it does not account for older adults who have borrowed for their children’s education.
On top of that, the findings reveal that half of all debtors over age 55, who are still working, earn less than $54,600 annually, indicating significant financial strain. 14.9% of workers aged 55-64 and 17.2% of workers 65 and older did not complete their degrees, for which they’d taken out loans, and are particularly at risk, as their incomplete education often does not boost their earning potential.
“Lower-income and middle-income or older workers have the largest amount of debt and are then faced with difficult decisions about whether to reduce their retirement savings, or to work longer and delay retirement to repay their student loans”, said Karthik Manickam, a research associate at the Retirement Equity Lab at the Schwartz Center for Economic Policy Analysis.
The research suggests that older workers aged 55 to 64 expect to take nearly 11 years to repay their loans, while workers 65 and up will need 3.5 years to pay off their student debt, on average. “Older workers do not have decades of future potential work that younger workers have to repay their loans”, added Manickam.
Policy Changes to Assist Older Borrowers
High student debt can hinder older Americans from saving adequately for retirement. Additionally, if they default, their Social Security benefits might be garnished. The research proposes several policy changes to alleviate these burdens:
- Implementing the Savings on a Valuable Education (SAVE) Plan: introduced by the Biden administration in 2023, offers accelerated loan forgiveness and an income-driven repayment (IDR) plan, enhancing retirement security for older workers. Under an IDR plan, borrowers only make monthly repayments when their income exceeds a certain threshold, and they pay a percentage of their income. After a set period, based on the borrowed amount, any remaining debt is forgiven.
- Ending Social Security Garnishing: this proposal aims to protect retirees and older workers who are already in a fragile financial state. By ending this practice, many American seniors can stabilize their finances, improve their economic security, and better prepare for retirement.