Over the last year we have highlighted just about every reason why millions of Baby Boomers will experience some difficulty achieving the retirement they have envisioned. In fact the problem is bleak enough to be called a ‘retirement crisis’ by social scientists.
There are many contributing factors. These factors are evenly divided between those that are within the control of the Baby Boomers and those that are beyond their control.
However, there is one roadblock to a Lemonade Retirement that we have yet to mention, and that
would be student loans. Student loans, of course, are fully within the control of Baby Boomers. The Federal Consumer Financial Protection Bureau reported recently that people 60 years of age and older owe an estimated $66.7 billion in student loans! By 2015 the number of seniors with student loan debt had grown to 6.4% of the total in this age group. And in the ten years from 2005 to 2015 the average indebtedness grew from $12,000 to $23,500.
Of course mortgage debt is the most common type of debt that Baby Boomers have in their retirement years, but sadly student loans are becoming more and more common. And it should be no surprise that seniors with student loan debt have less retirement savings than those with no student loan debt.
So whose educations are these Baby Boomers paying for? 73% of these loans were for the education of a child or grandchild. And only 27% were for their own education or their spouse’s.
The significant increase in the number of grandparents and parents agreeing to help pay the cost of their grandchildren’s or children’s education coincides with the skyrocketing cost of a college education. But if seniors are living on a fixed income and/or are struggling to save the funds they will need for retirement, they should think long and hard before agreeing to provide such help.
Besides higher education is often not such a great investment…..
Interestingly I am aware of many examples among affluent people who I know whose children’s education has turned out to be a very bad investment. Here’s just one example. The Blacks (not their real name) educate their one and only son in the finest, and priciest, private schools in Baltimore. He then goes on to an exclusive college in upstate New York to major in International Business and Chinese. Everything seems to be on track at what will be a total education cost of about $750,000! But midway through his college career he decides this is not the track for him. So ‘yes’ he will graduate, but probably not in four years. His degree will be in Music. And we will see, but from what I understand, a graduate degree will be necessary to get a job!
Hopefully the point is obvious. Going into debt to finance the education of children or grandchildren in today’s economy may not be the wisest thing for the majority of Baby Boomers to do. Hopefully some will rethink doing this.
On a related note, it appears that many seniors co-sign the loans for a child or grandchild without a clear understanding of the responsibilities of a co-signer on a student loan. The co-signer is every bit as responsible to repay the loan as the borrower. So if the child or grandchild is unable to make the payments because he does not get a job or for any other reason, the co-signer becomes a “co-borrower” and he must make the payments. The moral of this story then, is that parents and grandparents should never co-sign a student loan unless they are willing and able to make all loan payments.
One other warning. When there is a default or delinquency on a loan from a bank or private lender, social security income benefits are protected. However, on government backed student loans, social security income is not protected and can and will be levied by the lender should note payments be in default.
Note from Blogger:
When I came across the content in this post, I found it to be depressing. And I was reluctant to pass it along to my readers. Does it make sense to go into debt late in life paying for your children or grandchildren’s education, if your retirement is not 100% secured? I had no idea it was happening to this extent ($66.7 billion). So I put forth this information to inform all, but hopefully to cause a few to reconsider taking on student loans in their retirement preparation years or later.