Student Loan, Meet Social Security: Seniors Still Stuck with School Debt

Student Debt
Student Debt

The rising student debt crisis is hardly news: With hiring slow and tuitions high, the financial outlook has been bleak for many young college grads for quite a while. But according to some analysts, the college loan crisis has moved well beyond fresh-faced Gen Y'ers. Now, an older cadre is finding itself buried under the weight of unserviceable loans.

And, unlike college grads in their twenties, these older borrowers don't have a lifetime to pay off their debt; in fact, as recent stories have shown, a growing number of borrowers are facing garnishment of their Social Security checks to pay tuition debts that are decades old.

The idea that Social Security benefits could be seized to pay for student loan debt seems laughable, but the Debt Collection Improvement Act of 1996 made it possible. Social Security beneficiaries receive a $750 cushion, but up to 15% of funds above that line can be seized to pay down debts, including student loans. What's more, student loan debt has no expiration date and can't be discharged in bankruptcy, which means that graduates could, conceivably, have their retirement funds raided decades after they left school.

Of course, most student loans are paid off long before the recipient reaches old age. However, a recent report by the Federal Reserve Bank of New York stated that almost a third of student loan debt is held by people aged 40 and over, and 4.2% -- roughly $42 billion -- is held by people over the age of 60. Some of this loan debt is the result of cosigning -- grandparents or other elder relatives helping family members borrow for college. But many loans were taken directly by this older students, a result of our nation's long-term employment problems. Thanks to the downturn, large numbers of older students have returned to school in search of degrees and certifications to help them escape the bleaker corners of today's job market.


Private Colleges With the Lowest Student Graduating Debt

Lowest debt colleges GALLERY
Lowest debt colleges GALLERY

In the wake of the Great Recession, the problem has grown. As Reuters' Mitch Lipka recently reported, student loan debt among students aged 35 to 49 increased by 47% over the last three years, making them the fastest-growing group of borrowers. And with the average loan burden increasing from $9,000 to $12,000, this group is, effectively, playing a high-stakes game of roulette, betting that their wages will grow significantly before they hit retirement.

One thing that could help keep student loan debt somewhat more manageable is the extension on the 3.4% Stafford loan rate, a proposal supported by both President Obama and his Republican challenger Mitt Romney. However, opponents -- including Senate Republican leader Mitch McConnell -- have questioned how the proposed low rate would be funded. McConnell, in fact, argued that any extension of the low Stafford rate would be funded "by raiding Social Security and Medicare," a charge that would apparently leave elderly borrowers between a rock and a hard place. Most legislators, however, agree that McConnell's claim is false.

There are several proposals afoot to get student loan debt under control, but in the current political climate, it appears that there's no solution in sight. Meanwhile, student borrowers, both young and old, continue putting their money on the education roulette wheel, hoping that their winning number will come up.

Related Articles

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at, or follow him on Twitter at@bruce1971.