Why You Might Be Paying Student Loans Until You Retire (and Beyond)

Student debt grew across every age group over the past decade, including borrowers over age 60.

Rosemary Anderson has a master's degree, a good job at the University of California (Santa Cruz), and student loans that she could be paying off until she's 81.

Anderson, who is 57, told her complicated story at a recent Senate Aging Committee hearing (she's previously appeared on the CBS Evening News). She first enrolled in college in her thirties. Over the past two decades, her personal finances have been eroded by illness, divorce, the cost of raising two children, the housing bust, and the economic downturn. She hasn't been able to afford payments on her loans for nearly eight years.

Some 3 percent of U.S. households that are headed by a senior citizen now hold federal student debt, mostly debt they took on to finance their own educations, according to a new report from the Government Accountability Office, an independent agency. "As the baby boomers continue to move into retirement, the number of older Americans with defaulted loans will only continue to increase," the report warned.

Student debt has risen across every age group over the past decade, according to a Federal Reserve Bank of New York analysis of credit report data, charted below. "There are more people attending college, more people taking out loans, and more people taking out a higher dollar amount of loans," says Matthew Ward, associate director of media relations at the New York Fed.


While some borrowers are paying off their debts just fine, overall they're adding debt faster than they're shedding it, the New York Fed found. Between 2005 and 2011, borrowers under age 50 added more debt on average than they paid off. "Only those 60 and older are paying down (or otherwise lowering) their student debt, on average," senior economists Meta Brown and Donghoon Lee said in an email.

Brown and Lee think the data suggest three things. First, Americans are taking out loans throughout their lives to finance education for themselves and for their children. Second, some borrowers aren't paying enough each month to reduce the total balance they owe. And third, some borrowers are falling into delinquency and default.

After graduate school, Anderson had a mess of federal and private, subsidized and unsubsidized loans, which she decided to consolidate. The interest rate on the packaged loans, 8.25 percent, didn't seem like a big deal at the time. Then her financial situation changed. "It was like the perfect storm," she told National Journal.

There's currently no way to get rid of federal student debt other than paying off the loans. When borrowers stop making payments, the loan just sits there, accumulating fees and interest. After a borrower defaults, if she still does nothing, the government can sue, call in a debt collection agency, take a cut of her wages, or start taking money out of her tax refunds or monthly benefits like Social Security.

Anderson's lucky: She never defaulted. If she had, her debt load would likely be even larger, and her chances of paying it off even smaller. About 12 percent of the federal loans held by people ages 25 to 49 are already in default, according to the GAO report.

She's also lucky she graduated. College dropouts with student loans land in the worst situation of all: They have debt but no degree to help them access better-paying jobs. Many people in this situation are low-income, minority, or first-generation college students.

At least in theory, it's becoming easier for borrowers to manage their debt. Borrowers can ask the Education Department to adjust their loan payments according to their income, for example. Under income-driven repayment plans, the government will forgive remaining debt after 20 or 25 years.

But not enough people know that those options exist. And some of the repayment possibilities are better suited to a traditional college student—the young person who just completed a four-year degree—than to older people with a complicated loan history, like Anderson. "You can say all these resources are around and you have all these options, but they don't fit every single person," she says.