College Debt Beginning to Take a Bite Out of Older Borrowers

As College Republicans, our group tends to focus our ideas and energy on helping young adults succeed. When we think of colleges we tend to think of fresh-faced young people walking along a tree-lined quad or staying up late in an ivy-walled dorm to discuss philosophy (or drink some beer). But that focus and that image may be becoming too narrow, a result of a recession that saw middle aged Americans (once termed “non-traditional students”) returning to school in an attempt to reengage in the economy.

As of 2011, more than a third of undergraduate students are over the age of 25. That means that the percentage of “non-traditional” college graduates has nearly doubled in recent decades, jumping from 16 percent in the 1970s to 32 percent for the years spanning 2000-2014. According to the Department of Education, this trend is expected to continue, with the percentage of students aged 25 and older projected to grow faster than for traditional age students.

This trend makes sense. Economists have long pointed to the development of a skills gap–the gap between workers’ skills and the skills employers need–as one of the reasons for the slow recovery. As of last year, job openings were at a 14-year high, but the hiring rate remained largely steady.

“We interpret the combination of rising job openings and slower hiring as a potential sign of increased mismatch between the needs of employer and the skills of available workers,” John Ryding, chief economist at RDQ Economics told Reuters.

Sensing the mismatch, many older workers who were laid off during the financial crisis and subsequent recession, opted to return to school in an effort to find a job in the new economy. But in an effort to fill the skills gap, thev’ve fueled a new problem: the age of students has gone up, so too has the debt burdens of older Americans. Politico’s Danny Vinik reports:

Economists at the New York Federal Reserve released a new analysis Wednesday morning showing that older Americans held significantly more debt last year than in 2003. This “graying of American debt” might not be that surprising, except that it has largely come from one source we don’t associate with older people: Student loans.

Debt held by borrowers between the ages of 50 and 80 has increased by about 60 percent over the last 12 years, with student loan debt more than doubling. This isn’t normally the student-loan problem we think of: The focus on student debt has largely centered on young borrowers, who too often end up with high loan payments and no degree.

This has the potential for a huge double whammy. Unlike younger debtors who have a lifetime to pay off their student loan balances, many older workers simply lack enough working years to pay off the balance. Indeed, default rates for those between the ages of 65 and 74 were more than double that of borrowers aged 25 to 29 (27 percent versus 12 percent). And because student loans are not dischargeable in bankruptcy, but the Department of Education can garnish Social Security payments, many seniors may wind up off substantially worse off than they were before. As Vinik writes, it also leads to an odd situation in which “the government is sending out Social Security checks only to recoup some money for its student loan guarantees,” which ends up being an “elaborate and circular way to funnel money to the higher-ed sector.”

Fortunately, the policy answers for these older borrowers is substantially similar to those we’ve long argued for on behalf of young debtors: College needs to be made more affordable, more accountable for outcomes, and the student loan market needs to be more competitive. We at the College Republicans will continue fighting for these policy changes, we just need to recognize that the constituency we’re fighting on behalf of is changing. Republican politicians would be wise to do the same.