Permanent Value

Week in Review 01/09/2016

Bruce Doole
January 9th, 2017

Rising Student Debt Among Seniors Threatens to Wreck Their Retirement (part 1)

The CFPB reports that 60 and older is the fastest growing age segment with student debt, and nearly 40% of borrowers 65 and older are in default

Financial advisors may be surprised to learn that the fastest growing age segment of student loan borrowers are those 60 and older, and nearly 40% of student loan borrowers 65 and older were in default on student debt in 2015.

These are just two of the startling statistics disclosed in a new report from the Consumer Financial Protection Bureau.

The loans are both public and private, and about three-quarters were taken to finance a child’s or grandchild’s college education as a borrower or co-signer. The remaining portion were used for the education of the borrower or his or her spouse.

No matter who the beneficiary is, these loans are a burden for seniors in or near retirement, many of whom also hold other debt, such as a mortgage, auto loan or credit card debt.

For example, heads of households aged 50 to 59 who had outstanding student loan debt saved less for retirement that their counterparts who didn’t have such debt, according to Federal Reserve stats quoted in the report.

In 2013, the median 401(k) savings balance was $65,000 for those consumers without student loans but $55,000 for those with such loans. The gap was even greater for IRAs: a median $56,000 balance for those without student loans versus just $31,000 for those with student loans.

Advisors usually counsel clients to make saving for retirement a priority over saving for college, but having outstanding student debt apparently can also impact retirement saving.

Co-signing a student loan is also a risk for parents and grandparents, says Sommer. He suggests others ways to finance a child’s college education including choosing a community college for at least for the first two years of a college education as well as work study and student loans owed by only the student with no co-signer.

The latter are usually more available with government, rather than private, loans but there are limits to what can be borrowed.

Source: Bernice Napach

THIS WEEK’S ECONOMIC DATA:

  • FOMC Minutes revealed a wait-and-see theme as members expressed caution in evaluating the economic outlook given uncertainty on how federal spending, tax and regulatory policies would unfold under the incoming Trump administration.
  • U.S. jobless claims fell by 28,000 to 235,000 for the week ended Dec. 31, continuing a trend that suggests a solid job market.
  • EIA Petroleum Status Report showed crude oil inventories down 7.1 million barrels in the Dec. 31 week to 479 million, which is 6.2% above the level in the same period of the prior year.
  • Eurozone/European Union economic sentiment saw its fourth successive monthly rise in December, up 1.2 points to 107.8.
  • U.S. employment rose a lower-than-expected 156,000 (nonfarm payrolls) in December.
  • U.S. international trade deficit widened sharply in November to a higher-than-expected $45.2 billion. Exports fell 0.2%, while imports rose 1.1%.
  • U.S. factory orders fell 2.4% in November but were actually up 0.1% when excluding transportation equipment and a 94% monthly downswing in commercial aircraft orders.

Source: Ivy Weekly