Student loan debt has sparkled a wide debate in the United States in recent months. The administration of President Joe Biden is proposing the cancellation of interest debt to millions of low-income students, with the help of the SAVE plan, many of them drowning in debt.
Although student loans are commonly associated with young people, a recent analysis reveals that millions of Americans over the age of 50 face significant student debt. The problem for them is that they are on their way to retirement and will arrive owing tens of thousands of dollars.
American Adults Seriously in Debt With Student Loans
According to a recent study by the Schwartz Center for Economic Policy Analysis, 2.2 million Americans over the age of 55 have outstanding student loans. This group accounts for 43% of all student loan borrowers in the middle income brackets.
Accumulated and difficult-to-repay student debt not only hinders your ability to retire comfortably, but also significantly limits your ability to save for retirement. More than 14% of the debtors did not even complete their studies, which means that they did not receive the salary increase after graduation that could have justified their debt.
A significant 14.9% of workers between the ages of 55 and 64, and 17.2% of workers aged 65 and over, have not completed the degree for which they applied for loans. This compares to 18% of workers between the ages of 25 and 54 who have not completed their studies either. Senior debtors without full titles are at the lowest income level, which exacerbates their vulnerable financial situation on the way to retirement.
Social Security Benefits Can Be Garnished to Repay Student Debt
The bottom 50% of older workers have an average debt of $58,823. This high debt burden relative to your income increases the risk of default and can lead to garnishment of your Social Security benefits.
All this is being discussed within the framework of Biden’s SAVE plan and after the request of 30 congressional senators who asked the Social Security Administration, the Treasury Department and the Department of Education to end the practice of garnishing Social Security benefits to repay delinquent student loans. The letter from the 30 lawmakers sent on March 19 praises the Biden administration’s efforts to alleviate student debt, including automatic cancellation for people with permanent disabilities.
However, the signatories also urge the SSA to protect Social Security benefits and block them from being used to forcibly pay off these student debts. The Treasury Compensation Program (TOP) allows the Treasury Department to withhold a portion of Social Security benefits to collect delinquent student debts.
The letter highlights that, faced with the pause of several months and even years during COVID-19, millions of Social Security beneficiaries have been affected by this type of garnishments: the resumption of payments took place in October 2023 and many of them accumulated interest during the pandemic. Finally, the signatories ask that Social Security benefits be exempted from administrative compensation for student debts, arguing that this practice can push beneficiaries into poverty, contravening the purpose of Social Security to provide economic security. They request a briefing on these efforts by April 3, 2024.
Detailed explanation of the change from the SAVE Plan to income-based payment (IDR)
The SAVE Plan proposes a transition to an income-based payment system, known as IDR (Income-Driven Repayment). This change is designed to mitigate the negative impact of student loans on older workers. Under an IDR plan, borrowers would only make monthly payments when their income exceeds a certain predefined threshold. In addition, monthly payments would be limited to a specific percentage of your income, which prevents payments from being excessively onerous.
One of the key aspects of this plan is the forgiveness of the remaining debt after a certain period, which varies depending on the amount borrowed. For example, borrowers with less than $12,000 in debt could see their loans forgiven after 10 years of payments. For every additional $1,000 borrowed, the repayment period would be extended an additional year, capped at 20 years for undergraduate loans and 25 years for graduate loans.
This approach has several important benefits for senior debtors, especially those with low incomes. First, by limiting monthly payments to a percentage of their income, the immediate financial burden is reduced, allowing borrowers to keep more of their disposable income. Second, forgiveness of outstanding debt after the specified period offers long-term relief, eliminating debt that might otherwise persist indefinitely.
