While more than 44 million Americans currently owe an estimated $1.67 trillion in student loan debt, new data from Fidelity shows that individual debt levels have actually increased during the pandemic.
The Fidelity Investments 2020 Student Debt Snapshot even shows that, among those who used Fidelity’s Student Debt Tool, the average millennial graduate owes $52,000 on their student loans, and the average Generation X borrower owes $69,000. But even more shocking is the fact that baby boomers who used the tool owed an average of $75,000.
Why on Earth would baby boomers, who were born between 1946 and 1964, owe so much money on student loans? Fidelity points out that, although some boomers have gone back to school to earn a degree or work toward an advanced degree, the main driver of student debt for those in this generation is likely Parents PLUS loans secured for their children. Further, baby boomers continue to lead the pack over other age groups in terms of the amount their student debt is increasing, with a surge of 33 percent in loan debt in 2020 over 2019.
The Problem With Baby Boomer Student Loan Debt
Guardian’s 6th Annual Workplace Benefits Study showed similar student loan debt figures as Fidelity for baby boomers, then went on to highlight some of the biggest issues with acquiring education-related debt at an advanced age. According to Guardian
When you run the retirement numbers, you can easily see that baby boomers aren’t always positioned for a comfortable retirement at all when they agree to help their children pay for school. According to figures from the Transamerica Center for Retirement Studies, the median retirement savings for those in their 50’s is only $117,000, whereas those in their 60’s have saved a median amount of $172,000.
Data for 2019 and 2020 from the Federal Reserve SCF shows similar figures when broken down by age. Specifically, the numbers show the following average retirement savings figures for each age group:
- Ages 50-54: $146,068.38
- Ages 55-59: $223,493.56
- Ages 60-64: $221,451.67
- Ages 65-69: $206,819.35
Looking at these figures, it’s easy to see why baby boomer student loan debt is such an enormous problem. After all, those nearing retirement (or in retirement) should be focusing on their own financial health, and potentially even trying to boost their savings so they won’t be a burden on their children and grandchildren.
How can boomers help their children when, by and large, they are barely positioned to help themselves? Unfortunately, too many borrowers don’t ask this question until it’s far too late.
Why Parent PLUS Loans Are On The Rise
One major question people are asking is why parents are so eager to borrow money on behalf of their children. Why can’t young people take out their own federal student loans to pay for school?
According to Fred Amrein, founder of PayForED, one major problem is the fact that there is no transparency when it comes to the total cost and debt of educating a child. Further, borrowing limits for traditional federal student loans have not kept up with increasing college costs. Once traditional federal loans are exhausted, many families are left choosing from private student loans or Parent PLUS loans.
Also keep in mind that Parent PLUS loans let you borrow up to the cost of attendance, minus any aid received. As such, parents are able to borrow significant sums of money, and often more than they can reasonably afford to pay back. As Amrein points out, Parent PLUS loans often add up to as much as one would borrow for a home or a car, but since there is no underlying asset to secure the loan, individuals can make these enormous decisions without having to have a third party (a bank) approve it.
Some experts agree the surge in borrowing can be partially blamed on emotional responses as well. Steve Muszynski, the founder and CEO of Splash Financial, a leading student loan refinancing marketplace, says that Parent PLUS loans are on the rise due in part to the burden many parents feel to help their children go to college. Parents hear time and time again about the significant toll student loan debt is taking on our young people, and they want to help shelter their children from the worst of it.
“In short, baby boomers are taking out debt to help their children receive an undergraduate education,” he says, adding that many are sacrificing their retirement to do so.
Solutions To The Baby Boomer Student Loan Debt Crisis
Like other generations, baby boomers need to find other ways to pay for school for themselves and their dependents. Muszynski says that boomers considering Parent PLUS loans (or traditional student loans for their own education) should search for grants and maximize their subsidized government loans first. When it comes to helping a child pay for school, Muszynski also suggests evaluating whether the particular college their child wants to attend is financially viable.
Also consider the prospect of refinancing student debt to a new loan with a lower interest rate. “This can help save thousands over the life of the loan,” says Muszynski.
This is especially true since the interest rate is currently set at 5.30% for Direct PLUS Loans first disbursed on or after July 1, 2020, and before July 1, 2021. Due to the record low interest rates we’re seeing right now, it’s possible to secure a lower rate than that.
At the end of the day though, you can’t really stop people from sacrificing their own finances to help their kids. Travis Hornsby, CFA and founder of Student Loan Planner, says that many parents didn’t save for their children’s education but then feel obligated to make sure they give them the best chance in the real world by taking on the debt on their behalf.
Hornsby says he sometimes counsels borrowers who owe more than $400,000 in federal Parent PLUS loans for multiple kids, for example.
“Add in private loan borrowing that parents do, and it’s no surprise boomer debt is hitting records for that age cohort,” he says. “It’s the first generation that’s had to pay off their debt on top of their kids’ debt at extremely high prices.”
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