There was a frightening article for future retirees in the Washington Post last week. Some $35 billion in past due student loan debt is owed by those 60 and older. While anyone can fall behind in student loans, it’s important to understand how much student loan debt can ruin your retirement dreams and how those currently struggling found their way into their current predicament.
Still Paying Loans 30 Years Later!
The problem with tackling our debt is that there are so many loans to deal with. It’s not uncommon for someone to have credit card debt, student loans, a car payment and a mortgage. What debt is worse? What do you pay off first? Credit card debt has the highest interest, but student loans are unforgiveable.
There are those that are retirement age still paying for their education from decades ago and the biggest factor is that student loans are unforgivable. So regardless of what you can or do pay, the interest on student loans is going to accrue until you finally pay them off. Not to mention that government loans have multiple payment options that can extend terms of payment.
What you need to walk away understanding is that if your loan balance is not decreasing every month, you could be paying off the loans for the rest of your life.
Is College a Good Idea Late in Life?
One growing career trend over the last twenty years has been the extinction of lifetime employment. It’s left many seasoned employees out of work, late in life, with credentials lacking an advanced degree, certification or training. For many, the obvious step has been to get up to date on education. While going back to school might be your only viable option, you do need to weigh the risks of student loans.
The biggest thing to remember is that any amount you spend in loans needs to be offset by income. It requires you to take a serious look at what you might be earning after college, how long you want to be working and whether those gains are worth the costs. I hate to be the bearer of bad news, but if you need to go back to school in your late fifties just to retain the income you lost, that trip back to academia is probably not going to be worth the effort.
Picking up the College Tab for Your Grandchild
This really needs to be written across the top of any student loan promissory note:
“When you cosign, the debt is yours, not your progeny’s, and if you do assume payment on this debt, it’ll be a lot more than you thought!”
Here is how this story goes. Grandma cosigns on $20,000 for her gifted granddaughter thinking at worst, $20,000 is no worry. In this case Grandma has vastly underestimated the amount of money she is risking.
Think of it this way. A student can defer loans while interest accrues until they are done with college. This means that if your grandchild takes 6 years to graduate that $20,000 is already several thousand larger. What if your grandchild goes off to graduate school for 2 years? Now interest has accrued for 8 years and hasn’t once needed to make a payment. If the loans are government backed, there will be a 6 month grace period before loans are due. Then there are several years of potential forbearance and creative payment plans like income-based and graduated that will keep you out of the loop and the loan balance growing.
It’s not out of line to believe you could be on the hook for $60,000 or more by the time the bank comes to you for payment.
Student loans are risky, but less so for young adults who have a long time to make up for them. If you are nearing retirement age, you should avoid student loans if you can and accept them with extreme caution if you can’t, because struggling with student loans once is all it takes to struggle with them forever.