Retired and in hock for a student loan

2 min read

Student loan debt is burdening an increasing number of people age 65 and older, according to a report released Wednesday by the Government Accountability Office, or GAO.

While the percentage of people in this age group with student loan debt remains relatively small, growing from 1 percent in 2004 to 4 percent in 2010, the amount of the debt has skyrocketed — from about $2.8 billion in 2005 to about $18.2 billion in 2013. The median student loan debt for those 65 and older is $11,800. That’s not a huge amount, but it is enough to weigh you down if you are living in retirement.

About 20 percent of those with debt are paying off loans incurred by their children or grandchildren through government-backed Parent PLUS loans, but the majority — about 82 percent — are paying off their own loans. The GAO pointed out that payoffs of student loans can now be extended for as long as 25 years, so some of this debt could have been racked up when borrowers were much younger. Fortunately, only 1 percent of those aged 75 or older had student loan debt, the GAO says.

Default rate higher

Older borrowers are less able to pay off their debt, with 27 percent of borrowers ages 65 to 74 defaulting, and more than 50 percent of loans held by people 75 or older in default. Borrowers were more likely to be current on loans they took out to help their children. In 2013, the GAO says, 17 percent of Parent PLUS loans held by borrowers ages 65 to 74 were in default, while 30 percent of the loans that this age group took out to fund their own educations had gone bad.

What happens when you are old and fail to pay your student loan? Nothing good. The government will let you get 14 months behind before it takes action, the GAO says. After that, it is likely to charge collection costs of up to 25 percent of the interest and principal.

Between 17 and 29 months after you stop paying, the government will certify the loan as “eligible for offset” — garnishment of wages, Social Security, etc. Tax refunds are taken right away. Delinquent borrowers with with monthly benefits for offset (i.e., Social Security) get another 60 days to begin repayment.

In 2013, about 33,000 people 65 and older lost — on average — $130 a month of their Social Security payment to Uncle Sam because they were behind on their student loans.

The government can’t take all your Social Security. It is limited to the lesser of 15 percent of your total benefit or the amount by which your benefit exceeds $750 per month. For instance, if you get a $1,000 per month, the government could take no more than $150, leaving you with an $850 benefit. But as the GAO points out, this is enough to put your income below the federal poverty level.

No matter what your age, if you owe money on a student loan, don’t ignore the debt and hope it will go away. Here’s what you can do to manage your student loan debt if you get behind.