Some older Americans are facing a double debt dilemma with student and 401(k) loans

The pause on federal student loan repayments ends in January. And, on Feb. 1, interest will start to accrue again. Those monthly repayments may come as a shock for many Americans, including older borrowers.

While more than one-third of student loan borrowers are in their 20s and 30s, about 7% of those with student debt are 45 to 59 years old, and 1% are 60 or older.

Cassandra Shorter, 60, is a program manager in Houston. When she enrolled in college in 1979, she initially had about $17,000 in student loans and that debt has now more than doubled. 

“After graduating from high school, I went to college, then I had my daughter, and then about 30 years later I got a degree in biblical counseling,” she said. Shorter worked and went to school on and off for three decades before graduating in 2009. 

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Over the next decade, she often requested forbearance to temporarily stop making payments on her loans. “Every year I would have forbearance as an option, so I would do it,” she said. “But now I have nearly $36,000 in student loans.” 

Unlike the Covid-19 emergency relief that has suspended federal student loan payments and essentially set interest rates at 0% since March 2020, forbearance prior to the pandemic was very different. Generally, if you are granted a forbearance on federal student loan payments, you are still responsible for paying the interest that accrued during that forbearance period. 

Now, Shorter is worried she won’t be able to pay all that she owes. 

Older borrowers who are still paying off student loans often have higher balances than those from younger generations and less time to pay back those loans. Data from Fidelity Investments shows that while the average student debt for Gen Z borrowers is $27,900 and $46,400 for millennials, Gen X borrowers owe $51,400 and baby boomers have $58,300. 

“As you get older, you’re taking out higher interest loans,” said Amanda Hahnel, head of student debt retirement at Fidelity. “As you get older, you’re taking out loans for you and for your kids.

“So you’re getting hit both ways.”

In addition, Fidelity found many older student loan borrowers with access to workplace retirement savings plans are facing a double debt crisis as they often take out 401(k) loans, as well. 

“We see almost double the number of people with 401(k) loans when they’re holding student debt compared to those who don’t, and that’s really a mark of financial hardship,” Hahnel said.  

About 30% of boomers and 32% of Gen X borrowers with student debt also have a 401(k) loan, Fidelity data shows, compared to 17% and 23% of all 401(k) savers in those age groups who have borrowed from their 401(k) plan. 

Shorter said she thought about tapping her nest egg, but believes she is now too close to retirement to do it. While she hopes the government will expand its loan forgiveness programs to include older, long-time borrowers like her, she knows that is unlikely. So she’s planning ahead for next year.

To get ready for the end of the repayment pause on Jan. 31, 2022, college financing experts say you should review your budget to see how this renewed expense will fit in.

Make sure your loan service provider has up-to-date personal and financial information in case you’ve moved, changed jobs, are no longer employed or have had other life changes. And, also double check that your loan servicer has your accurate banking information, especially if you plan to resume making automatic payments. 

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