Meet Gen Xers and Baby Boomers who are retiring with 6-figure student debt that threatens their Social Security and savings

• BI spoke to Gen X and baby boomer student borrowers approaching retirement with six-figure debt.

• Student loans prevented each of them from saving enough for retirement.

• It’s part of a broader pension crisis and could put Social Security benefits at risk.

Diane Shelton, 58, has worked as a clinical psychologist for more than 25 years — but her student loans are still in the six figures.

Shelton’s debt is something of a double-edged sword.

“There is no doubt about the value of education, the value and the intrinsic wealth that I derive from the work that I have done,” she said. But this comes with a heavy borrowing burden, complicated bureaucracy and interest earned.

“I’ve been forbearing at times when I really couldn’t afford my mortgage. I had to choose,” she said. Even today, with a stable, well-paid career, his debt still impacts his economic trajectory.

The situation is a little different for Larry, 75, who asked that his last name be withheld for privacy reasons. He has a balance of $208,000 that he withdrew in the late 1990s to help his children go to school. As they took out federal student loans on their own, Larry wanted to make sure their options weren’t limited. So he took out Parent PLUS Loans – a type of federal loan that allows a parent to cover their child’s entire tuition costs. It has the highest interest rate of all federal loans.

Larry consolidated the four PLUS loans in 2007 with an initial principal of almost $160,000, but due to periods of unemployment, his loans went into forbearance, during which interest increased and increases the balance. Today, Larry works full-time in retail, and while he hopes to retire in a few years, he knows he’ll take his six-figure student loan debt with him.

“We’ve had savings, which are probably about a tenth of what they should be,” Larry said. “It’s taking a toll on us mentally. I think it’s affecting me a lot because I probably think about it every day because I can’t stop thinking about it. It’s really very frustrating, very embarrassing and just not fair.”

Shelton and Larry aren’t alone: ​​As Gen Xers and baby boomers age, they bring student loans with them. It’s part of a looming retirement crisis that could put even more older people in a precarious financial position — and potentially without comprehensive Social Security benefits to support them.

“I make a decent salary now, but there’s this whole price I paid by not being able to save for retirement,” Shelton said.

The Student Retirement Debt Crisis

Both Shelton and Larry face a unique aspect of the retirement crisis: They hope to throw in the towel while sitting on mountains of student debt. More than 1 million Americans ages 55 to 64 take out student loans or have spouses with loans, according to a report from the Schwartz Center for Economic Policy Analysis at the New School. These loan holders said that on average, they expect it to take 11 years to repay their debts – but it can often turn out to be much longer due to interest and financial hardship.

Among Americans holding student debt, Gen – hold installment loans for their studies.

The other day, Shelton was checking what his Social Security check would look like at different retirement ages, because the program encourages waiting to collect checks.

“If I work until I’m 70, that’s when I get the most money. But it’s still going to be tight if a quarter of that goes to paying off student loans,” Shelton said . “It stresses me out a lot.”

Interest is one of the main reasons many seniors struggle to pay off their student loans for decades. Since Larry couldn’t afford to make payments for a while due to financial difficulties, the 6.25% interest rate caused his balance to increase from what he had originally borrowed. It’s a problem that other PLUS borrowers have already reported to BI: while they took out loans to give their children the best chance of a successful future, they didn’t know at the time that it would leave them with balances that they could not afford to pay. disabled.

“We probably would have saved more than we tried to,” Larry said. “And thanks to those payments, we basically didn’t save much, other than my wife’s retirement fund.”

And while many older Americans rely on Social Security to survive their later years, it’s a particularly endangered benefit for student loan borrowers. This is because if the borrower fails to meet their payments, the government has the power to garnish Social Security benefits and wages until the borrower can again meet their student loan obligations. It’s a practice that some Democratic lawmakers, including Sen. Elizabeth Warren, have called for an end to.

“The idea of ​​not paying — well, now I understand that they can garnish your Social Security, and so I feel like there’s no way out,” Shelton said. “And so I’m probably going to work until I can’t work anymore.”

Are you worried that student debt will impact your ability to retire? Contact these journalists at [email protected] And [email protected].

Read the original article on Business Insider