By Carol H Cox
Are you a 
parent or grandparent considering co-signing on or taking out a student loan for your child or grandchild? Well, you may first want to read a new study on this matter.
In January of 2017, the Consumer Financial Protection Bureau (CFPB) released a sobering study called “Snapshot of Older Consumers and Student Loan Debt.” (In the study, “older consumers” are categorized as those being age 60 and older.) Between 2005 and 2015 the number of older consumers carrying student loan debt, meaning either co-signing on or taking out student loans directly, has increased by a factor of four, to 2.8 million Americans. These older consumers are responsible for a total of $66.7 billion of student loan debt, including federal Parent PLUS loans and private student loans.
Many of these older Americans nearing or in retirement are struggling to make debt payments on these loans. According to the CFPB, $23,500 is the average student loan debt being shouldered by older consumers as of 2015, nearly double the amount held 10 years earlier. The majority of this debt is for the benefit of children or grandchildren, rather than for the consumer’s or his or her spouse’s education.
Approximately 37 percentage of federal student loan borrowers age 65 and older were in default as of 2015 according to the CFPB. And many consumers are surprised to find that the federal government can offset (reduce) monthly social security payments and income tax refunds in order to make payments on a consumer’s federal student loans in default. (About 69 percent of Americans age 65 years and older rely on social security payments as their sole source of regular income.)
Facing retirement with student loan obligations on top of any other existing debt, like a mortgage, credit card balances, or an auto loan, can be a hardship for older Americans. Financial experts counsel consumers approaching retirement to think carefully before taking on student loan debt. An important question to answer is whether this additional debt will jeopardize a consumer’s financial security in retirement.
Older consumers may want to carefully evaluate whether they can afford to co-sign on or take out student loans. Here are some points to note:
- When a borrower co-signs on a loan they are equally responsible for paying back the debt as is the primary borrower, the student. If the student fails to make the necessary payments, the burden falls to the co-signer to make good on the debt.
- The consumer’s credit score can be affected by this debt and the student’s payment behavior related to it.
- If federal student loans are in default, the government may take a portion of the consumer’s social security income or tax refund to pay back some of the debt.
- Having student loan debt discharged in bankruptcy, is extremely difficult to do.
These are serious concerns. The CFPB questions whether many older Americans truly understand the effects and financial responsibility of either co-signing on or taking out student loans. Before committing to any student loans, older consumers would no doubt benefit from better, clearer, simpler, and more direct explanations about what this financial responsibility really means.
What are your personal experience with these issues?