Jim Roach never expected to be struggling with student debt in his 50s. When his daughter Lauren got accepted to Northwestern University, the Dallas-based serial entrepreneur and father of six was making too much money to qualify for certain kinds of loans. So he made the seemingly logical decision to take out a loan directly from the university. By the time Lauren graduated in 2006, the principal balance was down to $40,000–steep but manageable.
That’s when a series of unfortunate events struck: cancer, an expensive divorce, a new child born with a severe hearing impairment, a business going belly-up. Years of wrangling over payment ensued, with the end result of the school demanding the principal and an additional $27,000 in fees and interest.
“They were acting like a loan shark,” Roach tells Fast Company. He was eventually allowed–yes, allowed–to fork over the $40,000 principal, but he had to cut bait and leave his daughter on the hook for the rest.
Roach didn’t know it at the time, but he was part of a microeconomic wave, one that could easily turn into a macroeconomic tsunami. The baby boom generation is increasingly being sucked into America’s student debt crisis, and no one seems to know what effect it will have on the economy.
Student loans are generally thought to be a concern for young people. And they are: As of the end of 2015, per the latest available data from the New York Fed, Americans aged 18-34 held a massive $601.53 billion tab for higher education. But that same data also indicates that mom and dad (or grandma and grandpa in some cases) are shouldering more and more of these debts. From 2005 to 2015, the amount of student loan debt held by those ages 60-64 has increased eightfold, from $4.85 billion to $38.35 billion. For those aged 55-59, the increase is about fivefold, from $13.9 billion to $65.47 billion. And these older debtors are not exactly paying those loans off: 12.6% of debt held by 60- to 64-year-olds was in default at the end of 2015, a higher default rate than anyone under 40.
To make matters worse, the Trump era is not shaping up to be particularly friendly toward people struggling to pay off their educations. His education secretary, Betsy DeVos, has already scrapped an Obama-era plan to streamline the government’s system for servicing student loans. And just this week, a leaked education budget obtained by the Washington Post revealed a proposal to end a student loan-forgiveness program for public servants, creating uncertainty for some 400,000 borrowers.
The decisions driving the rising tide of boomer student loans are varied. Sometimes it’s parents like Roach who take out loans to pay for their kids’ tuition. Other times, it’s older workers who want to get a higher degree so they can be more attractive to employers. That was the case with 64-year-old Shelley Placito-Leaser, who had 20 years of counseling experience when she left the Air Force in the mid-’90s, but who wanted to continue her work in the civilian world–and be well compensated for it–something that required a higher degree. She went back to school in her 40s to get her Master of Social Work, starting at Barry University in Miami and finishing it up at Tulane University in New Orleans.
That degree ended up costing Placito-Leaser $50,000 on its face, and like many students, she borrowed money to cover the costs. She finally paid off the last of her loans in 2006, more than a decade after graduating–but that was only thanks to a windfall the family received. “The system is not designed to behave kindly toward people who are trying better themselves,” Placito-Leaser says. “If I hadn’t re-married, I would have been a single mother trying to balance school and parenting and work. I can’t imagine having been a single mother and being able to do this.”
Who’s Paying Attention?
Research on student debt and its potential effects on the economy abounds, but it tends to focus on millennials. “Students in Distress,” an excellent study on default-related labor market shocks from NYU Stern’s Holger Mueller and Constantine Yannelis, is one recent example. On the flip side, discussions about baby boomers in debt tend to underplay or even ignore the student loan problem, even though student-loan delinquencies are rising for that age group. The New York Fed collects data on student debt levels for different age groups–as do other organizations–but no one’s really crunched the numbers in a way that would predict what the rising tide of student-loan debt among older Americans might mean for the economy at large.
One of the more obvious potential effects would involve the real estate market. “We mostly see the impact of situations like that with studies on millennials and homeownership,” says Paul Weinstein, director of the MA in Public Management program at Johns Hopkins and a researcher frequently cited by the Public Policy Institute.
It’s long been known that buying a house is increasingly out of reach for younger adults, but millennials aren’t the only ones losing their grip on this core aspect of the American Dream. “About five years ago we started hearing from our members they’re running into buyers with too much debt,” says Jessica Lautz, managing director of survey research and communications for the National Association of Realtors.
The observation inspired some hard research revealing that about 70% of homebuyers with student-loan debt aged 52 to 61 said their loans were $10,000 or more, with a median burden of $18,000. That’s only $7,000 less than the median amount owed by those 36 and younger.
There’s also the possibility, Weinstein and Lautz agree, that the burden of higher education debt is being masked some by parents taking out second mortgages on their homes to pay for their kids’ college tuition, since such mortgages aren’t counted in the student loan pile. But that possibility is difficult to track using just numbers.
“Homeownership is the traditional way middle-income families have built on wealth, and if parents are taking out equity on their home, that’s a wonderful thing to do for their children,” Lautz says. “But the problem is if you’re taking on that debt later in life, that will hit you. It could hit retirement savings.”
Researchers are understandably reluctant to hypothesize on broader macroeconomic effects, given the dearth of research around this specific question. “Truthfully there is no good research out there,” Lautz says. “We know it’s the second largest sector of debt after mortgages. But many researchers tend to focus on crises that have already happened, and it is hard to get the data. If you’re looking at whether people are putting off retirement, the only way to do that is to actually ask them.”
One approximation comes from NAR, which did a survey of homeowners currently repaying student loans. The group found that 60% of boomers in that position expect to delay buying a new home by three to five years. Those who do buy homes tend to be buying for multigenerational living, which typically means they’re taking care of older parents in addition to possibly playing host to grown children.
The Bitter End
Placito-Leaser got free of her debt after making payments of $500 to $700 a month for nearly a decade. “Certainly it made a difference with what we could do with our lives,” she says. “There were vacations we didn’t take, that sort of thing.” Though she’s now retired, it was a tough row to hoe. The same goes for Roach, who started another business a couple years ago but was left with no savings–not exactly a position a 59-year-old wants to find himself in.
The AARP has studied its members’ attitudes toward debt, using data from the Employee Benefits Research Institute, but not with a specific focus on student loans. Its analysis of a 2016 survey of Americans 50 and older paints a picture of workers and retirees worried about debt in general: Half of the workers reported having a problem with debt, while a third of the retirees reported the same. One in nine said debt was a “major problem.”
And the problem is only going to get worse, with older members of Generation X now footing the bill for their children’s increasingly expensive educations, which are widely viewed as requisites for employment.
Roach offers a hint at what we might be seeing more of in the coming years. “I work with guys in their 70s and they’re out there swinging,” Roach says. “College is the reason a lot of people are still out there–we’ve got educations to pay for.”