Student Loan Debt Now Big Problem for Baby Boomers
When we talk about the student loan crisis, we tend to focus on millennials. After all, they are the ones impacted most directly by the ever-increasing burden of student loan payments. Student loan debt is one of the biggest factors driving a growing trend of millennials struggling to transition into adulthood. But increasingly, student loan debt is also impacting baby boomers and threatening their retirement.
The Wall Street Journal recently reported how easy it is for parents to get college loans to help pay for their kids’ education; however, repaying them is another story.
“Millions of US parents have taken out loans from the government to help their children pay for college. Now a crushing bill is coming due. Hundreds of thousands have tumbled into delinquency and default. In the process, many have delayed retirement, put off health expenses and lost portions of Social Security checks and tax refunds to their lender, the federal government.”
This is yet another story of unintended consequences created by the government’s good intentions.
A Department of Education program called Parent Plus allows parents to take out loans to help pay for their kids’ schooling. The program has loans outstanding to more than 3 million Americans. The number of families enrolled in Parent Plus has increased by more than 60% since 2005. Borrowers in the program owe roughly $77.5 billion – an average $22,000 per borrower, according to Education Department figures.
It’s a nice idea – make a way for parents to help put their kids through school – but like most government programs, it was ill-conceived from the beginning. According to the WSJ, “The government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores, or ability to repay.” What could go wrong, right? Well…
“As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on US mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.”
On top of directly taking out loans for their children, many parents are also stepping in to help their kids with loan payments. According to a MarketWatch report, a record number (more than 60%) say they are considering helping their children with college debt.
And of course, student loans are virtually impossible to extinguish through bankruptcy, which includes loans made through the Parents Plus program.
The Wall Street Journal compared the student loan mess to the subprime mortgage industry a decade ago, right before the 2008 crash. According to the analysis of data from credit-rating firm Equifax, 40% of student loans went to borrowers with credit scores below the subprime threshold of 620.
Overall, the number of Americans with federal student loans grew by 14 million to 42 million in the decade through last year. This included loans through programs for undergraduates, parents, and graduate students. Overall student debt more than doubled to $1.3 trillion over that period. According to the student loan debt clock, the total level of student loan indebtedness stands at over $1.4 trillion today. The federal government backs most of that debt. In other words, the taxpayer is ultimately on the hook.
The government has created yet another unsustainable bubble. What happens when it pops?
To learn more about the student loan debt crisis and how it may impact you directly, get Peter’s exclusive white paper The Student Loan Bubble: Gambling with America’s Future. You can download it free HERE.
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