As student loan payments resume after a lengthy pause, it's not just young individuals who are feeling the pressure. Surprisingly, there is a significant number of older borrowers who are not prepared for payments to resume on Oct. 1, as revealed by a recent survey conducted by the AARP Foundation.
While people aged 50 and older constitute only 20% of all student loan borrowers, they actually hold 25% of the total outstanding debt, which amounts to a staggering $411 billion, according to the charitable affiliate of AARP.
Contrary to popular belief that student loan debt is predominantly a problem faced by young individuals, the AARP Foundation aims to raise awareness about the 9 million older borrowers in the same predicament. Nicole Heckman, Vice President of Benefits-Access Programs at the AARP Foundation emphasized, "People often feel embarrassment, but we have to normalize people having and dealing with this debt."
The burden of student loan debt extends well beyond the essentials like housing, characterizing it as a perpetual low-level stressor that constantly lingers.
The national survey examined the financial situation of adults aged 50 or older who live at or below 250% of the federal poverty level and carry at least $1,000 in federal student loan debt. Shockingly, more than half of those surveyed are unaware of their options for reducing their payments, highlighting a lack of information in this age group.
Unsurprisingly, 76% of respondents expressed great concern about resuming payments given their current financial circumstances.
According to the Federal Reserve, the median student loan payment stands at $222 per month, while the average payment amounts to $393. In contrast, the average Social Security retirement benefit received is $1,543 per month. For 25% of older adults, Social Security represents a whopping 90% of their income.
Furthermore, the AARP Foundation points out that over 1 in 13 borrowers are falling behind on other payment obligations, a higher rate than before the pandemic. This can be attributed, in part, to increased interest rates and inflation. Falling behind on other payments increases the risk of becoming delinquent on student loan payments, further exacerbating the burden faced by older borrowers.
Understanding the Challenges Faced by Parent PLUS Borrowers
With student loan payments set to resume, it is essential to address the challenges faced by Parent PLUS borrowers. This includes an exploration of potential loopholes and practical solutions to navigate the complex world of student loan debt.
More Options to Reduce Student Loan Repayments
According to the AARP Foundation, more than half of the respondents to a recent survey were unfamiliar with income-driven repayment plans. However, 60% of those surveyed expressed interest in reducing their monthly payments, while 45% were interested in Total and Permanent Disability Discharge, and 34% were concerned about Social Security or wage garnishment.
Program 1: Fresh Start
The AARP Foundation highlights two programs that can assist borrowers who may face wage garnishment or have their Social Security benefits affected. One of these programs is Fresh Start, which provides borrowers with a one-time opportunity to exit default by enrolling in an income-driven repayment (IDR) plan. To take advantage of this program, borrowers must enroll by the end of 2024.
Fresh Start, administered by the U.S. Department of Education, offers special benefits for those with federal student loans in default. Around 80% of those who enroll in Fresh Start opt for an IDR plan, which customizes monthly payments based on income. These borrowers will never need to pay more than 10% to 20% of their income towards their loans. Remarkably, half of the borrowers pay nothing each month, while 60% pay less than $50 monthly.
Program 2: Saving on a Valuable Education (SAVE) Plan
Similar to other IDR plans, the Saving on a Valuable Education Plan calculates monthly payment amounts based on income and family size. However, the SAVE Plan offers additional advantages. Borrowers earning less than $15 per hour are not obligated to make any payments. For those earning more than this threshold, enrolling in the SAVE Plan can result in savings of over $1,000 annually.
Furthermore, utilizing the SAVE Plan ensures that borrowers' loan balances will not increase due to unpaid interest as long as they maintain regular payments.
Assisting Older Borrowers
Recognizing the challenges faced by older borrowers, the AARP Foundation has partnered with Savi, a financial-technology firm. The aim is to provide support in navigating student loan repayment programs and submitting applications. Importantly, there is no cost associated with this service for low-income individuals.
"Our research indicates that awareness of these programs remains alarmingly low," said Heckman, a representative from the AARP Foundation. "For those attempting to save for retirement or navigate life post-retirement while repaying student loans, the burden can become overwhelming. We are grateful that options exist to alleviate this hardship."
With so many borrowers unaware of income-driven repayment plans, it is crucial to spread the word about these initiatives. They enable borrowers to manage their student loan repayments more effectively and help alleviate the financial strain associated with high monthly payments.