Compounding interest is a magical term when your bank or retirement account benefits. However, a growing number of older adults are being unexpectedly dinged by forgotten student debt. According to the New York Federal Reserve Bank, over 16 percent of the $1.2 trillion in outstanding student loan debt is attributed to individuals over 50 years of age. What may have begun as a small loan decades ago has had time to become a major retirement obstacle due to compounding interest rates. Older loans often have a much higher rate of interest and they can be difficult to refinance or renegotiate and usually cannot be discharged through bankruptcy. Last year about 156,000 older adults lost an average of $180 of their monthly benefit check due to old student loans, a number that has tripled since 2006. For younger adults, student debt delays home ownership and forces many to work multiple jobs. For older adults, with debt clear back to the ‘70s and ‘80s, those loans can shrink a fixed income by as much as 15 percent when the Federal Government garnishes benefits to pay off that debt.
In addition to forgotten student loans, parents and grandparents are tempted to consider Parent PLUS Loans to finance the education of family members. But, student loan debt can’t be discharged and can come back to bite you if your loved one unexpectedly can’t or won’t pay off their debt.
Any money owed to the Federal Government can be garnished from your paycheck, bank accounts and Social Security accounts. Please read this article on other times the Federal Government can garnish your Social Security check.