UpFront | Published in February 2017

Student Loan Debt Follows Some Into Retirement

By PLANSPONSOR staff | February 2017
While many studies report about the burden of student loan debt on Millennials and how this may influence what they save for retirement, an Aon Hewitt study found that the debt and its associated consequences are issues that actually span generations, with 44% of Millennials reporting having student loans along with 26% of Generation Xers and 13% of Baby Boomers.
Now, a report from the Government Accountability Office (GAO) confirms that student loan debt can follow Americans into retirement and affect their retirement income.
The GAO examined: 1) characteristics of student loan debt held by older borrowers subject to offset and the effect on their Social Security benefit; 2) the amount of debt collected by the Education department through offsets and the typical outcomes for older borrowers; and 3) effects on older borrowers resulting from the program design of relief options. The GAO examined data from fiscal years 2001 through 2015 from Education’s National Student Loan Data System and other administrative data from The Treasury Department and Social Security Administration (SSA). The GAO also examined aggregated data provided by Education and Treasury, reviewed documentation, and interviewed agency officials about Education’s processes for providing relief from offset.
Older Americans—those in or approaching retirement—and other borrowers who default on their federal student loans are subject to a number of actions to recover the amount owed, including Social Security offsets, the GAO says. In fiscal year 2015, 49.7% of collections of defaulted student loan debt came from offsets of federal payments through the Treasury Offset Program, including but not limited to Social Security offsets.
The GAO’s analysis of data shows that the number of borrowers—especially older borrowers—who have experienced offsets of their Social Security benefits because of such unpaid loans has increased over time. From fiscal years 2002 through 2015, the number of these borrowers—of any age—with Social Security offsets increased from about 36,000 to 173,000.
Roughly 44% of borrowers aged 50 or older at the time of their initial offset saw the maximum possible amount of their Social Security benefit withheld—15% of their payment. The offset for the remaining 56% was less than that maximum. Most of these borrowers had between 10% and 15% of their benefit payment offset.
Older borrowers who remain in offset may increasingly experience financial hardship. Such is the case for a growing number whose Social Security benefits have fallen below the poverty guideline because the offset threshold does not adjust for cost of living increases. In fiscal year 2004, about 8,300 borrowers in that 50 and older group had benefits below the poverty guideline compared with almost 67,300 in fiscal year 2015. This growth was equivalent to an increase from 38% of that age group of borrowers in fiscal year 2004 to 64% in fiscal year 2015. In addition, a growing number of these older borrowers already received Social Security benefits below the poverty guideline before offsets further reduced their income.
The GAO suggests that Congress consider adjusting Social Security offset provisions to reflect the increased cost of living. It is also making five recommendations to Education, including that it clarify documentation requirements for permitted relief resulting from disability. Education generally agreed with the GAO’s recommendations.

In 2016, 63% of management, professional and similar workers in relatively high-paying jobs participated in defined contribution plans, compared with 19% of service workers, or those in relatively low-paying jobs, who participated.

service workers
management, professional and similar workers in relatively high-paying jobs