Student Loan Debt Among Older Workers Impedes Retirement Savings

While mounting student loan debt is often seen as an issue for younger workers, more than 2.2 million people over the age of 55 have student loans, making it more difficult save for retirement.

Many policymakers and academics stress that student loans represent borrowers investing in themselves to increase lifetime earnings and wealth, but new research from the Schwartz Center for Economic Policy Analysis at the New School suggests that people over the age of 55 with outstanding student loans are unlikely to increase their lifetime wealth.

More than 1.4 million workers and another 820,000 unemployed people, all aged 55 and above, have outstanding student loans attributed to either them or their spouses, according to data from the Federal Reserve Board’s 2022 Survey of Consumer Finance.

The Schwartz Center classified workers into three groups by earnings:

• Bottom 50%: low-income, earn less than $54,600
• Middle 40%: middle income, earn between $54,600 and $192,000
• Top 10%: high income, earn more than $192,000

Student loans are described as potentially “good” debt because borrowers could potentially increase their lifetime earnings by obtaining a college degree paid for with student loans. However, Karthik Manickam, a Ph.D. student in the economics department at the New School for Social Research, said during a press briefing Wednesday that 50.3% of older workers with student debt are in the bottom half of income earners and average debt still owed is highest for the bottom half workers at around $

“If student debt worked as intended for older workers, we would expect higher income, …, so that despite having high a level of debt they would be able to repay their debts at a relatively manageable rate,” Manickam said, “However, the average amount of debt is actually highest for the bottom half of workers.”

Another issue the data revealed was that some workers do not benefit from their student loans because many have not completed their degrees. According to the findings, 15.3% of low-income, older workers and 20.3% of middle income, older workers with debt have not completed the degrees for which they took out loans. Conversely, all high-income earners have completed the degrees for which they borrowed.

With the issue of retirement security, older workers do not have decades of future potential work to pay of their loans that younger workers have.

“Lower income and middle-income older workers have the largest amount of debt and [may have to] make difficult decisions about whether to reduce their retirement savings or to work longer and delay retirement to repay their student loans,” Manickam said.

The Federal Reserve’s Survey of Consumer Finances found that workers aged 55 to 64 expect to take an average of nearly 11 years to repay their loans, while workers 65 and older will need 3.5 years to pay off their student debt, on average.

The high level of debt relative to income means borrowers have high repayment burdens—the ratio of amount owed to amount earned in a given period—which increases their risk of default, according to the Schwartz Center’s report. When a debtor defaults on a student loan, the loan becomes “delinquent,” which is one of the few conditions that trigger Social Security benefits to be garnished, thus reducing retirement income for the defaulted borrower.

To illustrate these impacts, Manickam gave an example of the hypothetical older worker, Chris, who lost his job due to the 2008 financial crisis. Chris was advised to enroll in a master’s degree program at a local college in order to re-skill himself and become competitive on the job market. To pursue the degree, Chris took out a combination of federal and private loans.

In 2024, Chris is 55 years old and earns the median income of $54,600. After a decade and a half of making minimum monthly repayments, he still has a debt of $50,000 at 4.3% interest.

To retire by age 65 without any student debt, Chris must repay his loan in nine years—requiring an annual repayment of $5,364. At this rate, Chris is spending on debt repayment an additional $60,386 in funds that otherwise could have gone toward his retirement.

Manickam explained that certain policy interventions, such as the Savings on a Valuable Education Plan and ending Social Security garnishment have the potential to help older workers save for retirement while also paying off their student loans.

The SAVE Plan, introduced by the Biden administration in 2023, provides for accelerated loan forgiveness and an income-driven repayment plan, which would help alleviate the harmful impact of loans on older workers. Under an income-driven repayment plan, debtors only need to make monthly repayments when their income rises above a certain threshold.

Additionally, in March, more than 30 members of Congress called on the Social Security Administration to end the garnishment of Social Security benefits to repay federal loans. This reform would help protect retirees and older workers who are already in financially precarious positions, according to the Schwartz Center.