- Americans over 50 held 22% of student loan debt in 2020, according to AARP and Federal Reserve data.
- Balances weren’t smaller than other age groups, either: they totaled about $40,000 per family.
- This could spell trouble for those age 50 and older, who are already behind on retirement savings.
Millennials and Gen Z aren’t the only generations struggling with student loans. It turns out baby boomers and Gen X deal with student debt, too.
Data from AARP and the Federal Reserve‘s survey of Consumer Finances found that those age 50 and older held about a fifth (22%) of all US student loan debt in 2020. In 2004, that number was just 10%.
According to the data, 8.4 million Americans age 50 and older held $336.1 billion of student loan debt in 2020. That averages $40,011 per family — a figure that nearly matches the average 2019 student loan debt of $40,300.
And, as 50-somethings approach retirement, that amount of debt could be problematic.
Over 20% of student debt was held by those age 50 and older
The data isn’t clear about whether the student loans held by those age 50 and older were used for education for themselves or for family. But, the National Center for Education Statistics reports that about 10% of undergraduate students during the 2016-2017 school year received Parent Plus Loans, a type of loan for parents that carries a higher interest rate than federal subsidized and unsubsidized loans. The average Parent Plus loan was $34,700 during the 2016-2017 school year.
The survey of consumer finances in 2019 found that the average student loan payment was $393 per month, with a median of $222 per month. While federal student loan payments are paused through September 30, 2021 due to the pandemic, student loan balances aren’t disappearing anytime soon.
And, in an age when retirement savings should be a priority, spending an extra $200 to $300 per month on student loans could quickly create problems before retirement even begins.
Baby boomers’ and Gen X’s retirement savings are already lagging
Baby boomers have saved for retirement, but the amount that the typical person in their 50s and 60s has saved for retirement may not be enough to live on for many years to come.
According to data from Personal Capital, the typical American in their 50s has $530,000 saved for retirement, and the average person in their 60s has about $642,000 saved. And, while that might seem like a lot, it may not go far.
Experts recommend using the 4% rule to determine how much you can take from your retirement account each year. A retiree with the typical amount saved for a 60 year old could take an income of $25,680 per year, or $2,140 per month using this rule, excluding any taxes and Social Security income.
In many parts of the US, $2,140 per month isn’t enough to retire comfortably. While the IRS makes it possible to make catch-up contributions later in your working years, boomers and older Gen Xers may not be able to take advantage if they’re still saddled with student loan balances.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article