On The Shore On The shore — 03 February 2017
When student loans endanger retirement

By Robyn A. Friedman

City & Shore Magazine

Many parents are taking on their children’s college debt — a dangerous trend that could potentially jeopardize their retirement down the road.

A new study released in December by researchers at the University of Southern California and University of South Carolina found that the average college debt owed by parents was $21,000; for high-income parents, it’s $30,000.

“This is an emerging phenomenon — not something that was a reality in the United States until the last 10 to 15 years,” says Jennifer Ailshire, an assistant professor of gerontology at USC and the study’s co-author. “A lot of it has to do with the rising cost of tuition, but there’s also an increasing number of children going to school.”

The statistics are sobering. According to the U.S. Government Accountability Office (GAO), in 2015, there were about 6.3 million student-loan debtors age 50 to 64 and 870,000 borrowers age 65 and older, an increase since 2005 of 119 percent and 385 percent, respectively. Of older borrowers who defaulted, about three-quarters had taken loans for their own education, and one-quarter had borrowed for their children’s education through the Direct PLUS Loan program.

While helping to pay for your children’s college education is a wonderful gesture, parents doing so face several risks. The first is delaying retirement. The obligation to make monthly student-loan payments can force parents to work longer than they planned. Even worse, more borrowers 50 and older are defaulting on their student loan repayments each year, according to the GAO — and older borrowers who default on federal student loans can end up having their Social Security garnished to repay them.

“It’s a potentially dangerous situation to be in during retirement,” Ailshire says.

With studies showing that many adults are failing to save enough for retirement, having to make payments on student loans can put financial pressure on even affluent parents, who might have a substantial income but little savings. Once they retire, the income ceases and their nest egg might not be sufficient to cover both living expenses and college debt.

So what’s a parent to do? 

Plan early. Don’t wait until the last minute to put together a financial plan to cover college expenses. Start working toward that goal as early as possible — perhaps even when your children are born.

Save, save, save. The more savings you can put away for college, the fewer loans you and your children will need.

Don’t jeopardize your retirement. If taking out a loan places you at risk, then don’t.

Remember that if your needs in retirement can’t be met because you’re paying off Junior’s loans, then the obligation to finance your retirement may fall upon him.

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