Relatively Few Households Headed by Individuals 65 and Over Hold Student Loan Debt, but the Amount They Owe May Be Significant

According to the 2010 SCF, households headed by older individuals are  much less likely than those headed by younger individuals to hold student  loan debt. This compares to 24  percent for households headed by those under 65—representing about  22 million households. Although few older Americans have student debt, a majority of  households headed by those 65 and older reported having some kind of  debt, most commonly home mortgage debt, followed by credit card and  vehicle debt. While relatively few older Americans have student debt, data from the  SCF suggest that the size of such debt among older Americans may be  comparable to that of younger age groups. Among all age groups, the  median balances of student and other types of debt are dwarfed by  median balances of home mortgage debt. Among households  headed by those 65 and older, the estimated median student debt was  about $12,000, and among those 64 and younger, about $13,000. 1). During the same  period, the percentage of households headed by individuals 65 to 74 who  had some student loan debt increased from just under 1 percent in 2004  to about 4 percent in 2010—more than a four-fold increase. 2). The total  outstanding student debt for those 65 and older was and remains a small  fraction of total outstanding federal student debt. However, debt for this  age group grew at a much faster pace—from about $2.8 billion in 2005 to  about $18.2 billion in 2013, more than a six-fold increase. Older Borrowers Hold Defaulted Federal Student Loans at a Higher Rate and Default Can Have Serious Consequences

		Older Borrowers Hold Defaulted Federal Student Loans at a Higher Rate, Especially for Their Own Education

Although older borrowers hold a small portion of federal student loans,  they hold defaulted loans at a higher rate than younger borrowers. These actions can have serious financial  consequences for the borrower. For example, Education may charge  collection costs up to 25 percent of the interest and principal of the  loan. Of  those borrowers, about 19 percent (6,000) were 65 or older. From 2002  through 2013, the number of borrowers whose Social Security benefits  were offset has increased roughly 400 percent, and the number of  borrowers 65 and over increased roughly 500 percent (see fig. The Social Security retirement or survivor benefits of about 33,000  Americans age 65 and older were reduced through offset to meet  defaulted federal student loan obligations in 2013. Because the statutory  limit at which monthly benefits can be offset has not been updated since it  was enacted in 1998, certain defaulted borrowers with offsets are left with  Social Security benefits below the poverty threshold. Appendix I: Objectives, Scope, and Methodology

To understand the extent to which older Americans have outstanding  student loans and how this debt compares to other types of debt, we  relied primarily on data from the Federal Reserve Board’s Survey of  Consumer Finances (SCF), a survey that is conducted once every 3  years and gathers detailed information on the finances of U.S. families. this testimony. To understand the extent to which older Americans defaulted on federal  student loans and the possible consequences of such a default, we relied  on a number of data sources and agency documents related to federal  student loans. For about 4.3 percent of offset  payments, we were unable to determine the type of benefit, and we  excluded these payments from the analysis of the type of benefit that was  offset. To evaluate the extent to which Social Security benefits would  have been offset if the $750 limit below which benefits are not offset had  been adjusted for changes in the poverty threshold, we analyzed TOP  data to impute the amount of a monthly Social Security benefit payment  from the size of the offset that was taken from that payment.
Why GAO Did This Study

Recent studies have indicated that many Americans may be approaching their retirement years with increasing levels of various kinds of debt. Such debt can reduce net worth and income, thereby diminishing overall retirement financial security. Student loan debt held by older Americans can be especially daunting because unlike other types of debt, it generally cannot be discharged in bankruptcy. GAO was asked to examine the extent of student loan debt held by older Americans and the implications of default.
This testimony provides information on: (1) the extent to which older Americans have outstanding student loans and how this debt compares to other types of debt, and (2) the extent to which older Americans have defaulted on federal student loans and the possible consequences of default. To address these issues, GAO obtained and analyzed relevant data from the Federal Reserve Board's Survey of Consumer Finances as well as data from the Department of the Treasury, the Social Security Administration, and the Department of Education. GAO also reviewed key agency documents and interviewed knowledgeable staff.

What GAO Found

Comparatively few households headed by older Americans carry student debt compared to other types of debt, such as for mortgages and credit cards. GAO's analysis of the data from the Survey of Consumer Finances reveals that about 3 percent of households headed by those aged 65 or older—about 706,000 households—carry student loan debt. This compares to about 24 percent of households headed by those aged 64 or younger—22 million households. Compared to student loan debt, those 65 and older are much more likely to carry other types of debt. For example, about 29 percent carry home mortgage debt and 27 percent carry credit card debt. Still, student debt among older American households has grown in recent years. The percentage of households headed by those aged 65 to 74 having student debt grew from about 1 percent in 2004 to about 4 percent in 2010. While those 65 and older account for a small fraction of the total amount of outstanding federal student debt, the outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.
Available data indicate that borrowers 65 and older hold defaulted federal student loans at a much higher rate, which can leave some retirees with income below the poverty threshold. Although federal student loans can remain unpaid for more than a year before the Department of Education takes aggressive action to recover the funds, once initiated, the actions can have serious consequences. For example, a portion of the borrower's Social Security disability, retirement, or survivor benefits can be claimed to pay off the loan. From 2002 through 2013, the number of individuals whose Social Security benefits were offset to pay student loan debt increased about five-fold from about 31,000 to 155,000. Among those 65 and older, the number of individuals whose benefits were offset grew from about 6,000 to about 36,000 over the same period, roughly a 500 percent increase. In 1998, additional limits on the amount that monthly benefits can be offset were implemented, but since that time the value of the amount protected and retained by the borrower has fallen below the poverty threshold.

What GAO Recommends

GAO is not making recommendations. GAO received technical comments on a draft of this testimony from the Department of Education, the Department of the Treasury, and the Federal Reserve System. GAO incorporated these comments into the testimony as appropriate.