While more than 44 million Americans currently owe an estimated $ 1.67 trillion in student loan debt, new data from Fidelity shows that individual debt levels have in fact increased during the pandemic.
the Fidelity Investments 2020 Student Debt Snapshot even shows that among those who used Fidelity’s Student Debt Tool, the average millennial graduate owes $ 52,000 on student loans, and the average Gen X borrower owes $ 69,000. But even more shocking is the fact that the baby boomers who used the tool owed an average of $ 75,000.
Why on earth should baby boomers, born between 1946 and 1964, owe so much money in student loans? Fidelity points out that while some baby boomers have gone back to school to earn a degree or graduate, the biggest driver of student debt in this generation is likely Parents PLUS guaranteed loans for their children. Additionally, baby boomers continue to lead the pack relative to other age groups in terms of their increased student debt, with a 33% increase in loan debt in 2020 compared to 2019.
The Problem With Baby Boomer Student Loan Debt
Guardian’s 6th Annual Workplace Benefits Study showed student loan debt numbers similar to Fidelity’s for baby boomers, then highlighted some of the bigger issues with acquiring college debt in old age. According to the keeper
When you calculate the retirement figures, you can easily see that baby boomers are not always placed at all for a comfortable retirement when they agree to help their children pay for school. According to the figures of the Transamerica Center for Retirement Studies, the median retirement savings of people in their 50s is only $ 117,000, while those in their 60s have saved a median amount of $ 172,000.
Data for 2019 and 2020 from Federal Reserve SCF shows similar numbers when broken down by age. Specifically, the figures show the following average retirement savings figures for each age group:
- 50-54 years: $ 146,068.38
- 55-59 years old: $ 223,493.56
- 60-64 years: $ 221,451.67
- 65-69 years: $ 206,819.35
Looking at these numbers, it’s easy to see why baby boomer student loan debt is such a huge problem. After all, those who are nearing retirement (or are retired) should focus on their own financial health and even try to increase their savings so that they are not a burden on their children and grandchildren.
How can baby boomers help their children when, on the whole, they are barely able to help themselves? Unfortunately, too many borrowers don’t ask this question until it’s too late.
Why Parent PLUS loans are on the rise
A major question people are asking is why parents are so eager to borrow money on behalf of their children. Why can’t young people take out their own federal student loans to pay for their education?
According to Fred Amrein, founder of PayForED, a major problem is the fact that there is no transparency regarding the total cost and debt of raising a child. Further, borrowing limits for traditional federal student loans have not kept up with rising college costs. After traditional federal loans are exhausted, many families have the choice of private student loans or Parent PLUS loans.
Also, keep in mind that Parent PLUS loans allow you to borrow up to tuition fees, less any assistance received. As a result, parents are able to borrow large sums of money, and often more than they can reasonably afford to repay. As Amrein points out, Parent PLUS Loans are often as much as one would borrow for a house or a car, but since there is no underlying asset to secure the loan, individuals can make these huge decisions without having to get third-party approval (a bank).
Some experts agree that the increase in borrowing can also be partially attributed to emotional reactions. Steve Muszynski, Founder and CEO of Financial Splash, a leading student loan refinance market, says Parent PLUS loans are on the increase, in part because of the burden many parents feel in helping their children get to college. Parents hear time and time again about the heavy toll student loan debt has taken on our young people, and they want to help protect their children from the worst.
“In short, baby boomers are taking on debt to help their children get an undergraduate education,” he says, adding that many are sacrificing their retirement to do so.
Solutions to the Baby Boomer Student Loan Debt Crisis
Like other generations, baby boomers must find other ways to pay for their education for themselves and their dependents. Muszynski says baby boomers considering Parent PLUS loans (or traditional student loans for their own education) should seek grants first and maximize their subsidized government loans. When it comes to helping a child pay for their education, Muszynski also suggests evaluating whether the particular college their child wants to attend is financially viable.
Also consider the prospect of refinance student debt into a new loan with a lower interest rate. “This can help save thousands of dollars over the life of the loan,” says Muszynski.
This is all the more true as the interest rate is currently set at 5.30% for Direct PLUS loans first disbursed on July 1, 2020 or after and before July 1, 2021. Due to interest rates record interest rate that we are seeing now, it is possible to get a lower rate than this.
Ultimately, however, you can’t really stop people from sacrificing their own finances to help their children. Travis Hornsby, CFA and Founder of Student loan planner, says many parents didn’t save for their children’s education, but then feel compelled to make sure they are giving them the best possible chance in the real world by taking on the debt on their behalf.
Hornsby says he sometimes advises borrowers who owe more than $ 400,000 in Federal Parent PLUS loans for multiple children, for example.
“Add in private borrowing from parents, and it’s no surprise that baby boomer debt is breaking records for this age group,” he says. “This is the first generation that had to repay their debt in addition to that of their children at extremely high prices. “