NEW YORK — In the debate over growing student debt, there has always been one mitigating factor: Borrowers tend to be fairly young and there is plenty of time to pay off what they owe.
So what about those who are not so young?
This is a mounting concern. Those 60 and older now owe $43 billion in student loan debt, according to data from the Federal Reserve Bank of New York, a new record for that age group.
Also at all-time highs are their average debt loads — $19,521 — and the total number of 60-plus borrowers, at 2.2 million.
Some of them took on this debt to pursue their own studies, perhaps after being laid off during the Great Recession and being unable to find new work; others, to help their kids pay for school.
Either way, older Americans are accumulating student debt just as the window of their working lives begins to shut.
Back in 2001, almost no households headed by seniors had outstanding student loans — it rounded down to zero percent.
“Now, it is up to three percent, basically tripling over the course of the decade. It is worrisome,” says Richard Fry, a senior economist at the Pew Research Center in Washington, D.C.
What else has been growing? The amount those borrowers owe.
Pew’s research discovered that in 2001, 65-plus households who had some student debt were grappling with median bills of $2,200. By 2010, that multiplied fivefold, to $12,400.
These figures suggest it’s a challenge for seniors to deal with their debt load. Indeed, according to the New York Fed, a whopping 12.5 percent of student loans, made to borrowers age 60 and over, are more than 90 days delinquent.
“Most American households have been deleveraging since 2008, reducing debts on things like cars and credit cards,” Fry says. “But not seniors. Their student loans have been rising, incomes have not been keeping up, and they have not been able to deleverage like younger generations have.”
How can older Americans deal with this awkward new reality of owing student debt well into their golden years?
Here’s what financial planners advise.
Never a borrower be (let the kids do it)
If you want to help your children or grandchildren with college bills that is a noble goal. But that doesn’t mean you have to take out loans yourself.
“Let the kids take out the debt,” says Jim Holtzman, a planner with Legend Financial Advisors in Pittsburgh. “You can then help them pay down their loans, if you like, through annual gifts. That way you are helping them, but still retain flexibility regarding your own retirement plan.”
Indeed, remember that old financial-planner adage — your kids can borrow for college, but you cannot borrow for retirement.
Curtail your overly generous spirit when necessary, and be realistic about the assets you are going to need yourself.
Know your loan
If you decide to do the borrowing, there are critical distinctions to consider between types of student loans,
First, know that a federal PLUS loan is yours to repay, not the child’s, says Fred Amrein, principal of Amrein Financial in Wynnewood, Pennsylvania. “That is the biggest issue parents sometimes don’t understand.”
Similarly, if you co-sign for a child’s private loan, you are on the hook if he or she defaults.
A macabre corollary: You may want to consider taking out life insurance on your offspring. That way, if they prematurely pass away and you are stuck with the loan, you won’t drown in debt as a result.
On the positive side, if payments are being made on time, “you can find out if there is a way to eventually get off that loan altogether,” says Amrein.
“Sometimes co-signers on private loans can be released after a period of time — often two to five years.”
Also, think ahead about what happens when you pass away. If it is a federal PLUS loan, for instance, the debt is subsequently forgiven. But if it is a private loan, it is not wiped away, and the balance will come out of your estate.
Consider tapping equity
Many older Americans have an ace in the hole when it comes to their estates: the family home.
Should you draw on that home equity to help erase student debts?
Compare the fixed rate of PLUS loans, currently at 7.9 percent, with a $30,000 home equity line of credit — currently averaging 5 percent, according to Bankrate.com — and it can look like a highly attractive swap. Indeed, the spread compared to private loans can be even wider.
But heed the dangers of drawing down home equity, too, which can leave you in a precarious position should values plummet.
If you move the debt to a home equity loan and die the next day, that loan doesn’t get erased. However, if you had kept it as a PLUS loan, that debt would be discharged entirely.
The choice comes down to your personal financial situation — the type of student loan you have, how much debt you’re struggling with, and the size of the equity stake in your home.
“Interest rates are so low that it can make sense,” says Legend Financial Advisors’ Holtzman. “But you don’t want your house to become an ATM machine.”