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How student loans are handled can jeopardize long-term financial security of older borrowers

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Complaints from older borrowers with student loans show that how the loans are handled can jeopardize their long-term financial security.

Student loans make up the nation’s second largest amount of consumer debt, and seniors are the fastest growing part of this debt.

From 2005 to 2015, the number of Americans age 60 or older with one or more student loans quadrupled from about 700,000 to 2.8 million. And the average debt load owed by an older borrower nearly doubled from $12,000 to $23,500.

About three-in-four older borrowers with student loans used them to finance their children’s or grandchildren’s college education. 

Older borrowers struggling to make payments complain about obstacles to enrolling in payment plans based on their incomes and in getting their protections as cosigners, according to a Consumer Financial Protection Bureau report released Thursday.

In 2015, nearly 40 percent of federal student loan borrowers age 65 and older were in default.

“It is alarming that older Americans are the fastest growing segment of student loan borrowers,” said Richard Cordray, director of the bureau. “Many of these older Americans are helping to finance their children’s or grandchildren’s education while living on a fixed income.”

Cordray said the agency is concerned that student loans are contributing to financial insecurity for many older Americans and how their loans are handled can add to their distress.

Some older borrowers struggle to repay their student loans as they juggle other debts and later-life expenses on fixed incomes with little in savings. Older consumers often have decreased income as they approach or enter retirement and experience physical and mental problems as they age. These challenges may limit their ability to keep working and reduce income.

Older student loan borrowers also carry mortgage, credit card, and auto loan debts, according to the bureau’s analysis. In addition, the bureau found older borrowers are more likely than those without outstanding student debt to skip health care expenses, such as prescription medicines or doctor visits.

According to complaints with the bureau, older consumers report problems with student loan practices such as:

  • Delaying or prohibiting enrollment in payment plans that allow a reduction in payments when their income is reduced. Older borrowers in default report that their Social Security benefits are taken to repay a federal student loan – despite their right under federal law to correct their default and seek payment relief under a plan related to their income.
  • Incorrectly applying co-signer payments to other loans owed by the primary borrower: Servicers usually apply payments received across all serviced private student loans owed by the primary borrower. Some co-signers complain that their payments appeared short because they were spread out over all of the primary borrower’s private student loans. This can result in servicers charging co-signers late fees and interest charges, as well as reporting late and missed payments to credit reporting companies.
  • Failing to provide borrowers access to loan information: Some co-signers complain that they’re unable to monitor the student loan that they co-signed because loan servicers didn’t respond to their requests for help in accessing account information. Others report that by the time the servicer sends the co-signer a notice of missed payments, the amount due has accrued fees and penalties. Some private student loan borrowers say they didn’t receive notice before a negative report was sent to consumer reporting companies.
  • Threatening to offset private student loan borrowers’ federally protected benefits: Some federal benefits, such as Social Security benefits, are usually protected from collection for private student loans in default. Some older borrowers report that when the primary borrower fails to pay, servicers and debt collectors threaten to collect protected benefits. 

The bureau’s report urges policymakers to consider how potential policy changes and market shifts, including changes to the availability of borrowing and repayment options, can affect older consumers’ long-term financial well being.

Student loan borrowers can get advice on student loan repayment options by using the bureau’s Repay Student Debt tool. Those having problems with repaying student loans or debt collection can submit a complaint to the bureau.

Copyright 2017, Rita R. Robison, Consumer Specialist


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