Millions of Americans over 50 could benefit from Biden’s student loan forgiveness plan
Without his student debt, Lark Abelson would already be retired.
The 63-year-old took out a $5,000 loan more than 20 years ago to earn an associate’s degree in computer technology from Wor-Wic Community College in Maryland to try and improve her and her life. of his youngest daughter. But she couldn’t find work in the field and stayed in low-paying retail jobs that left her unable to pay off her debt. After repeatedly signing up for income-driven repayment plans, she defaulted a few years ago.
Abelson, who lives outside of Ocean City, Maryland, was afraid to quit his job and rely on Social Security because the federal government can withhold part of his monthly checks to pay off debt.
But the federal student debt relief plan that President Joe Biden announced in late August gave Abelson new hope. Although she hasn’t checked her balance lately, she thinks this will clear what she owes. She has already asked to be told when she can apply for a pardon and has taken the first step towards registering for social security benefits.
“Because I know this is coming to fruition, I actually started the Social Security claims process the day after Biden announced,” Abelson said of the debt relief plan. “I am beyond grateful.”
There are nearly 9 million federal student loan borrowers like Abelson who are over the age of 50. They make up nearly 20% of the roughly 43 million federal student loan borrowers.
And the number of older borrowers with student debt is on the rise. About 1.6 million borrowers over age 50 have federal student loan debt now than in 2017, according to federal student loan data.
Not all older borrowers will be eligible for Biden’s student loan forgiveness. Their income must be below $125,000 per year (or $250,000 for couples) to qualify – the same income threshold for all borrowers. Borrowers must also have federal loans. Private student loans are excluded.
Eligible borrowers can have up to $10,000 of their student debt forgiven. Those who received a Pell grant while enrolled in college are eligible for a rebate of up to $20,000. Pell grants are awarded to millions of low-income students each year, based on factors such as family size and income and the cost of college.
There are several reasons why older borrowers are still paying off their student loan debt. Some have borrowed federal student loans to help their children pay for college, the price of which has risen faster than inflation, while others can still pay off their own education debts.
And if borrowers default, they could lose some of their Social Security benefits. In 2015, according to the latest available data, the government cut Social Security checks for a total of 173,000 Americans of all ages, up 380% from 36,000 in 2002.
Of those over 50, three-quarters owed loans solely for their own education, and most owed less than $10,000 at the time of the initial Social Security garnishment.
Nearly 40% of federal student loan borrowers age 65 and older are in default, according to a 2017 report from the Consumer Financial Protection Bureau.
Parents can apply for what is called a Parent PLUS loan from the federal government to help their children pay for college. About 3.6 million people currently have Parent PLUS loans outstanding, totaling more than $107 billion, according to government data.
Parent PLUS loans were first made available in 1980 and are intended to cover the financial shortfall if the student’s loans do not pay the full cost. Parent loans generally carry a higher interest rate than federal student loans, and payments must be made while the child is still in school, unless the parent requests a deferral.
When James and Mary Stone took out Parent PLUS federal loans to help their two sons pay for their education decades ago, they didn’t think they would still be struggling with debt in their late 60s.
The North Carolina couple still owe $29,000, despite making payments for years. Just before the pandemic started, they were sending about $400 a month under an income-driven repayment plan.
After Mary Stone lost her job as a webmaster last year, they sold their house and rented a smaller one so they could retire.
To have at least some of that debt forgiven would be a big relief for the Stones, especially since James Stone was diagnosed with cancer in May. The couple don’t yet know how much their treatment will cost, but a lower monthly loan payment will give them more leeway.
“It will mean that I can devote my time and energy to meeting my husband’s needs at home, rather than taking a low-paying job to help pay for this loan,” said Mary Stone, noting that her sons are still struggling with their own college student loans.
If borrowers stop repaying their loans, the balance continues to grow due to interest. Unlike other debts, it is very difficult to obtain cancellation of student loan debt in the event of bankruptcy.
Franco Tompeterini is grateful that $10,000 of his student loans will be forgiven, although he wishes it was more since his balance soared to $88,000 in the 25 years since he graduated.
A US Air Force veteran who served in Operation Desert Storm, Tompeterini took out loans of around $34,000 to earn a bachelor’s degree from American National University after leaving the military.
After making monthly payments for a few years, Tompeterini had to return home to take care of his elderly parents. Unable to find a job in his field, he took a lower-paying one and left his loans in default for about a decade before entering into an income-driven repayment plan about 15 years ago. But the payments didn’t even cover all the interest, let alone the principal. So the amount he owed only increased.
The government offers several income-oriented repayment plans that reduce monthly payments for borrowers who are struggling to repay their loans. Typically, an income-driven plan caps payments at 10% of the borrower’s discretionary income.
Although lower payments help borrowers avoid defaults, their monthly payment may no longer cover the interest accrued each month. In this case, the total outstanding debt continues to grow. Biden plans to propose a new revenue-driven plan where the government would cover unpaid interest.
Tompeterini’s student loan debt prevented him from buying a house or putting money in the bank.
“I really don’t have a future,” said Tompeterini, who lives in Rogers, Arkansas, and works as a property manager. “At 60, I should be thinking about retirement and what I’m going to do. Now I will probably have to work until I die. And I’m still going to have student loans that are going to be due. They will finally be written off after my death.