Millions of Americans could see their Social Security retirement payments cut by $300 a month

Millions of older Americans are facing a financial challenge that could threaten their retirement plans – unpaid student loan debt.

While student debt may be seen by many as a problem mostly faced by young workers, there are 2.2 million people over the age of 55 with outstanding loans.

If they still have student loans when they retire, they risk up to 15 percent of their Social Security pension payments being taken by the government at the source if they default on the debts.

Social Security retirement payments vary, but average $1,907 a month, according to officials. Losing 15 percent of that would be $286.

Having the weight of student debt hanging over older workers is hampering their ability to retire comfortably, according to new insights from the New School’s Schwartz Center for Economic Policy Analysis.

The weight of student debt is hampering older workers' ability to retire comfortably

The weight of student debt is hampering older workers’ ability to retire comfortably

Debt-laden older workers face student loan repayments in their later years, the report found.

On average, workers ages 55 to 64 take almost 11 years to finish paying off their student loans, while those over age 65 will need 3.5 years, Fed data show.

While the Biden administration has forgiven $167 billion in student loans for 4.75 million Americans so far, that help is only for certain groups like those who work in the public sector.

Millions of seniors still have student debt. In fact, the report found that middle-income workers age 55 and older represent the highest percentage of all student loan borrowers.

“Older debtors lack the characteristics of younger debtors – they have more years of ‘prime age’ work left. [to earn a salary]more time to save for retirement – ​​making it harder for them to achieve the promised ‘returns’ on their investment,” the report said.

The debt burden also falls disproportionately on people with lower incomes.

The Schwartz Center found that half of all debtors over the age of 55 — who are still working — earn less than $54,600.

That means they may have a harder time saving since they still have to put money toward paying off the loan — and they may have to rely more on Social Security once they reach retirement age.

Others may not be able to retire at all — joining the millions of Americans over 65 still working.

About 14.9 percent of these workers over 55 have not completed the degree for which they received credit, the report states.

This means not only do they have to make loan repayments, but they have to do so without benefiting from the expected increase in income from a completed degree.

“These older workers face the twin effects of debt and lack of increased earning power, making them particularly insecure,” the report said.

President Biden has forgiven $167 billion in student loans, but many Americans are still in debt

President Biden has forgiven $167 billion in student loans, but many Americans are still in debt

When a borrower defaults on a student loan, the report adds, the loan becomes “in arrears.”

Delinquent federal student loans are one of the few conditions that cause Social Security benefits to be garnished, which reduces retirement income, he said.

The authors of the report call for new laws to prevent this.

It suggests that policy interventions, including eliminating Social Security guarantees and improvements to the student loan forgiveness program, could ease the debt burden on older workers and help them save for retirement.

It highlights the Biden administration’s Savings in an Education Worthwhile (SAVE) Plan, which shortens the timeline for debt relief and means borrowers make monthly payments only when their income rises above a certain threshold.

The report comes as Americans are increasingly questioning the value of a college degree — and whether the potential cost of an education is worth the return.

How an older worker with student loan debt is affected

The Schwartz Center for Economic Policy Analysis provided a hypothetical situation to illustrate the problem…

Chris lost his job due to the financial crisis of 2008. He was advised to enroll in a master’s program at a local private, unranked college in order to retrain and become competitive in the job market.

To pursue the degree, Chris took out a combination of federal and private loans. In 2024, Chris is now 55 years old and earns an average income of $54,600. After a decade and a half of making the minimum monthly payments, he’s still saddled with $50,000 in debt at 4.3 percent interest.

In order to retire by age 65 without any student debt, Chris must pay off his loan in nine years—requiring an annual repayment of $5,364, representing an annual repayment burden of 9.9 percent, considered an ‘average’ level.

At this rate, Chris loses an additional $60,386 in funds that could otherwise go toward his retirement.

Chris can reduce the repayment burden to have more money to save for retirement by extending the loan repayment period, but this will likely delay his ability to retire.

If Chris loses his job and decides to start his Social Security benefits early at age 62, but then defaults on his federal loans, he could lose about $2,500 a year in guaranteed benefits of Social Security.

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