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Older Borrowers Need to Think Twice Before Co-signing Student Loans

April is Financial Literacy Month, and as usual, we can again expect a slew of articles chastising Americans for their lack of financial savvy.

According to the National Financial Educators Council, in their most recent National Financial Literacy Test, which measures basic financial knowledge, 55.40% of respondents aged 15-18 failed. A related test for college-bound youth and current college attendees measures the ability to make responsible student loan decisions. More than half of respondents, 63.99%, failed the test. With the amount of student loan debt currently topping $1.56 trillion, that’s $521 billion more than the total U.S. credit card debt, it’s no wonder that financially stressed employees aren’t contributing to their retirement plans.

But that stressed-out employee may not be who you think it is. When we imagine the face of someone burdened by student loans, we usually think of a millennial, or maybe a Gen X worker. Add some gray hair to that picture. In 2018, borrowers age 60 and older were the fastest growing segment of student loan borrowers.

The majority of these loans were used to pay for children’s or grandchildren’s education, and show how seniors are more often shouldering the burden of rising college tuition for family members, either through taking loans directly or more often, co-signing for them. Between 2012 and 2017, older borrowers increased by 46 percent, and their delinquency rate increased by 80 percent. People over 60 currently hold over $67 billion in student loan debt, with an average loan balance of $23,500—numbers that have doubled over the last decade.

Seth Frotman, executive Director of the Student Borrower Protection Center, comments that “Older borrowers are taking on substantial amounts of debt into retirement, and the true impact is nearly everywhere in terms of growth of debt, delinquencies and sheer number of borrowers. It raises real questions and concerns about the impact on their retirement security.’’

The consequences for retirement security can be dire, especially for older borrowers who often are navigating repayment while living on a fixed income. Student-related loan debt usually cannot be erased under bankruptcy protection. Social Security payments can be garnished to cover federally backed student loan payments, and can force seniors into poverty.

While older borrowers transitioning into retirement may become eligible for income-based repayment options after their income is reduced, loan servicers may not always get the memo. More than 300 complaints against companies were lodged with the Consumer Financial Protection Bureau from older borrowers in 2018. Complaints ranged from being unable to have their income-based loan repayment adjusted after entering retirement to being denied access to cosigned loan records. The improper denial of cosigner release requests can restrict access to other forms of credit and prolong indebtedness, extending an unexpected burden of student debt into retirement.

For many borrowers, the government’s public service loan forgiveness program hasn’t been much help either. In spite of an additional $350 million dollar fund authorized by Congress in 2018, a staggering 99% of applications have been denied. Notorious for its Byzantine application process and requirements to be met, the program was allocated the additional money to give borrowers who had been previously denied a second chance. As of September 2018, out of 34,000 applications received, only 26 borrowers had been approved.

Older consumers should think twice before co-signing a family member’s student loan. According to Frotman, previously the student loan ombudsman for the CFPB, “Quite often we hear from older borrowers that it was never made clear to them that they were essentially co-borrowers. Many thought they were merely acting as references. We’ve seen tens of thousands of borrowers pushed into poverty or further into poverty because of student loan debt.”

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