People Over 60 Fastest-Growing Segment Of Student Loan Borrowers

August 2018

Excerpt from an article published in the Financial Advisor News

Recently, the Consumer Financial Protection Bureau (CFPB) concluded that Americans who are 60 or older represent the fastest-growing segment of student-loan borrowers.

In fact, between 2005 and 2015, their numbers quadrupled to nearly 3 million.

Not surprisingly, the majority of those loans were for the borrowers' children or grandchildren. Sounds nice? As understandable as this familial generosity may be, some observers caution that it really isn't so good for those parents' and grandparents' financial security, especially as they enter retirement.

"This is not a good trend," said Paul Lightfoot, president of Optima Asset Management in Dallas. "For a generation already identified with not having put aside enough for retirement, those over 60 can quickly deplete and/or jeopardize their retirement savings when co-signing for student loans."

The key problem, of course, is that cosigners are legally responsible for covering the debt if the student defaults. Many senior citizens are on a fixed budget, so that debt could hit them hard. "At a time in their lives when medical expenses begin to rise, seniors might find themselves forgoing necessary prescriptions or doctor’s appointments in order to repay the student loan," said Lightfoot.

A cosigner is supposed to strengthen a student's chances of securing a loan, or even of securing a lower rate. While that's often true, older Americans' financial resources shouldn't be overestimated. The CFPB report also found that, as of 2015, 37 percent of the federal student loan borrowers who were 65 or older were in default -- 20 percentage points higher than the default rate for borrowers 49 and under.

Moreover, many of those older borrowers lost some Social Security benefits because of unpaid student loans: 40,000 borrowers in 2015, a rise of some 360 percent over the preceding 10 years.

Lightfoot further points out that there's no guarantee the borrowed money will go for the intended purpose. "While private student loans are intended to cover the costs associated with gaining a college education, there is little to prevent the student from spending the money on items other than college-related expenses," Lightfoot warned.

Read the entire Financial Advisor News article.

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