Many over 50 are still saddled with student loans

Lingering student-loan debt — which in recent years has been a drag on the economy as borrowers delay big-ticket purchases such as homes and cars — is beginning to affect millions of people as they head toward retirement.

More than 16 percent of the nearly $1.2 trillion in outstanding student-loan debt in the nation is held by people over 50, according to the New York Federal Reserve Bank.

"It's one of the largest economic issues of our time, and it's not just a young person's issue," said Natalia Abrams of the advocacy group StudentDebtCrisis.org.

Many of the borrowers have taken out loans later in life, often for retraining to stay afloat in a changing economy. Some wound up on the hook when they co-signed or took out loans for children and grandchildren.

Others, like Andrew Jones of Englewood, New Jersey, have had the loans follow them throughout their adult lives into retirement. Jones defaulted on nearly $5,000 in student loans he took out in 1970, when he went off to Yankton College in South Dakota. He has paid more than double the initial balance, and his Social Security check recently was garnished to pay back the interest and fees.

"I'm 63 years old and they're chasing me on a student loan?" Jones said. "They want to keep taking money from me until I'm dead."

Jones' 44-year-old case is an outlier, but around the country older people are struggling with student-loan debt at a time when their earning power may be waning. Many, like Jones, never completed the degrees that could have generated a return on the investment in the form of higher wages earned by college graduates.

The root of the phenomenon, experts say, lies in the escalating costs of college juxtaposed with a stalled economy.

The Federal Reserve has noted that "the dramatic increase in debt implies that a fundamental change has taken place in the way we finance higher education in the U.S."

Betsy Mayotte, director of regulatory compliance for American Student Assistance, which administers federal education loans, said: "This problem is getting worse and is going to continue to get worse. We're going to see a higher population of people using Social Security to pay off loans."

She noted that the number of borrowers taking out federal Parent Plus loans for their children's schooling has increased since the recession when housing prices dipped and home equity loans and lines of credit were scaled back.

Rachel Storch said her father decided to take out a parent loan to help pay for her third year at Rowan University in New Jersey. "My dad thought it was the best thing to do," Storch said, but she worries about his retirement — he turns 60 this year and likely will have to borrow for her younger siblings as well.

"I feel awful," she said. "This is a whole tangled web of bad. I know some people's grandparents who are taking out loans."

Alice Mainville thought she was investing in her future when, at 49, she took out $25,000 in loans to return for her master's degree in school counseling. Mainville was a school secretary and believed more schooling would position her for a better job.

"I thought it would make me more employable so I thought I would be able to make that money back with no problem," said Mainville, now 56. But the job market tightened while she was in school. She has applied for dozens of jobs, with no luck. "One job I applied for had 400 applicants," said Mainville, who lives in Massachusetts. "Now I regret the work, the time and the money" for the advanced degree.

Mainville was able to qualify for a federal income-based repayment plan, and is making regular payments to whittle down the $25,000 debt. But it feels like a long slog at this stage of her life. "It helps, but the meter is still running," she said. "It seems like I'll never pay this off."

The Obama administration's new repayment options have offered easier terms to some borrowers, but defaults have still risen. Nearly 7 million borrowers are in default with a total of more than $100 billion owed, said Rohit Chopra of the federal government's Consumer Finance Protection Bureau.

"This is not a rare situation; unfortunately it's all too common," Chopra said. "And the consequences are severe."

For Jones, the default has been costly. He has paid more than $11,000 over the years but still has a balance of more than $18,000 on the loan — an amount that represents the four decades of interest on the $4,937 principal and $2,314 in fees.

The fees pay for the lawyers who are contracted by the state to collect on the federally guaranteed private loan. Jones, who was laid off from his warehouse job this year, made sporadic payments on the loan over the years and declared bankruptcy in 1996. Going bankrupt, however, does not allow a borrower to stop paying back student loans.

"There is very little in the legal system that has no statute of limitations, maybe only murder or treason," said Persis Yu, staff attorney with the student loan borrower assistance project of the National Consumer Law Center in Boston. "To have something like this follow you from the 1970s is ridiculous."

The garnishment of $145.50 of his $970 monthly Social Security check hurts, Jones said. The money doesn't go far in North Jersey, where he rents a room in a friend's house.

"I'm one step from homeless," he said.

Those who default on loans may have made financial missteps, but many were young and uninformed when they made the commitments and never got the benefit of a degree, said Richard Vedder, an economist who is director of the Center for College Affordability and Productivity.

"The risks of going to college are completely downplayed; in fact they are ignored. A big part of the problem is that schools have no skin in the game," Vedder said, noting that colleges face no penalties if the loans are in default.

Vedder said the availability of federally backed loans has fueled tuition increases that have far outpaced inflation and put college out of reach for the very low-income students who were supposed to benefit from the federal money. "It's a dysfunctional system that's not achieving its paramount goal."

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