How Student Loan Debt Impedes Retirement and Financial Security for Older Workers

May 28, 2024

Issue Brief | How are older debtors and their retirement savings impacted by student loans? Our analysis of the data shows that millions of older workers in the U.S. have significant student debt that may hinder their ability to retire comfortably.

By: Karthik Manickam

Key Findings:

  • There are 2.2 million people over the age of 55 with outstanding student loans.
  • Older workers aged 55 and up in middle-income brackets represent the highest proportion of all student loan borrowers (43%).
  • This student debt hinders older debtors’ ability to retire and save for retirement.
  • Policy interventions can mitigate these impacts by forgiving student debt, making debt repayment easier, and by preventing the garnishing of Social Security benefits to repay student loans.

Public discourse portrays student debt as a problem facing younger workers; however, millions of older debtors aged 55 and up have student loans that make it more difficult to save for retirement. Less savings makes older people more likely to need public assistance. Older debtors are unable to benefit as much from returns on education and need policy interventions to help reduce their debt obligations in order to save for retirement or choose to retire. Policies that will help remedy this include the Saving on a Valuable Education (SAVE) Plan proposed by the Biden administration, and efforts to stop Social Security garnishments to repay federal loans.


Student loans are portrayed as an investment that helps equalize access to opportunity and financial mobility by enabling students without wealthy parents or other finances to afford college. 

Policymakers and academics stress that student loans are personal investments that increase lifetime earnings and wealth. While some younger workers may get access to opportunity and upward mobility by borrowing money for school, the estimated 2.2 million people over the age of 55 with outstanding student loans are unlikely to increase their lifetime wealth.

Older debtors lack the characteristics of younger debtors – more “prime-aged” working years left, more time to save for retirement – making it harder for them to attain the promised “returns” on their investment. Over 14 percent of older debtors also haven’t completed their degree and thus fail to get the increased pay expected for workers who have managed to complete their degrees.  These older debtors also suffer because student loan repayments divert income from their retirement savings.

Three policies would help minimize the negative impacts of student debt on retirement savings: student loan forgiveness, income-based repayments – key components of the Saving on a Valuable Education (SAVE) plan – and preventing garnishment of Social Security benefits to repay student loans.

Millions of Older Americans Saddled With Student Loan Debt

More than 1.4 million workers and over 820,000 unemployed people aged 55 and above have outstanding student loans attributed to either them or their spouses, according to data from the Federal Reserve Board’s 2022 Survey of Consumer Finance (SCF).


Figure 1 - Total Number of Older People With Loans

Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

Older Workers Do Not Benefit From Returns to Education

Student loans are described as potentially ‘good’ debt because borrowers increase their future lifetime earnings with a college degree. However, the increase in lifetime earnings assumes debtors have a long working life or a large increase in income due to their degree that enables them to repay their debt and recoup high returns. Older debtors do not have 20-30 years to benefit from enhanced earnings, meaning they get a far lower rate of return.

Half of all debtors over age 55 who are still in the labor force are in the bottom half of income-earners, earning less than $54,600, based on estimates using 2022 SCF data. Policymakers must address this major financial vulnerability.


Figure 2 - Percentage of Older Workers (55+) With Student Debt by Class

 Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

Adding to these vulnerabilities, 14.9 percent of workers aged 55-64 and 17.2 percent of workers 65 and older have not completed the degree for which they’d taken out loans – so they don’t gain financially. This is comparable to the 18 percent of workers aged 25-54 who haven’t completed their degrees, meaning they have significant debt without benefiting from the expected income rise from a completed degree. This phenomenon is known as the “sheepskin” effect. These older workers face the dual effects of both indebtedness and lack of enhanced earning power, making them especially precarious. 


Figure 3 - Proportion of Debtors Who Haven't Completed Their Degree


Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

The problem of incomplete degrees is highly class-based: all debtors without completed degrees are in the bottom 90 percent income level of older workers. 


Figure 4 - Proportion of Incomplete Degrees Among Older Workers (55+) by Class


Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

Student Debt Diminishes Older Workers’ Retirement Security

Debt-burdened older workers face student loan repayment well into their retirement age years. The Survey of Consumer Finances found that older workers aged 55-64 expect to take an average of nearly 11 years (10.96) to repay their loans, while workers 65 and up will need 3.5 years to pay off their student debt, on average.

Figure 5 - Average Time (in Years)  Remaining to Repay Loans

 Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

Another significant class-related concern: the bottom 50 percent of income earners owe the highest average debt ($58,823).


 Figure 6 - Average Debt (USD) Still Owed By Older Workers (55+) by Class

 Source: SCEPA calculations using data from the Survey of Consumer Finances, 2022.

Older workers’ substantial repayment period and the sizable amounts still owed hinder their ability to retire and save for retirement. First, the high level of debt relative to income means borrowers have high repayment burdens – the ratio of amount owed to amount earned in a given time period – which increases their risk of default. When a debtor defaults on a student loan, the loan becomes “delinquent.” Delinquent federal student loans are one of the few conditions which trigger Social Security benefits to be garnished and thus reduces retirement income.

Second, student loan repayments can lower retirement savings. The need to repay student debt may delay or prevent retirement and can negatively impact workers’ retirement security. 

To illustrate these impacts, consider a hypothetical older worker, Chris, who lost his job due to the 2008 financial crisis. Chris was advised to enroll in a master’s degree program at a local, non-ranked private college in order to re-skill himself and become competitive on the job market. To pursue the degree, Chris took on a combination of federal and private loans. In 2024, Chris is now 55 years old and earns the median income of $54,600. After a decade and a half of making minimum monthly repayments, he is still saddled with a debt of $50,000 at 4.3 percent interest.

In order to retire by age 65 without any student debt, Chris must repay his loan in nine years – requiring an annual repayment of $5,364, which represents an annual repayment burden of 9.9 percent, considered a “medium” level. At this rate, Chris loses an additional $60,386 in funds that could have otherwise gone to his retirement. 

Chris could reduce his repayment burden to have more money to save for retirement by extending his loan repayment period, but this would likely delay his ability to retire. If Chris loses his job and decides to prematurely begin drawing on his Social Security benefits at age 62, but then defaults on his federal loans, he could lose about $2,500 a year in garnished Social Security benefits.vii


Policy Interventions: The Savings on a Valuable Education (SAVE) Plan and Ending Social Security Garnishing

The Savings on a Valuable Education (SAVE) Plan

Two reforms would enable older workers to save for retirement: The Savings on a Valuable Education (SAVE) Plan, and ending the garnishment of Social Security benefits to repay student loans.

Loan forgiveness is the most direct way to address the negative impacts of student loans on older workers. Discharging loan obligations would allow older workers to save their income for retirement. The SAVE Plan, introduced by the Biden administration in 2023, provides for accelerated loan forgiveness and an income-driven repayment plan, giving older workers a path toward retirement security. 


The SAVE Plan’s shift to income-driven repayment (IDR) would also alleviate the harmful impact of loans on older workers. Under an IDR plan, debtors would only make monthly repayments when their income rises above a certain threshold. Additionally, they would only be obligated to pay a percentage of their income at a time until their loans are repaid. Beyond a certain period conditioned on the amount borrowed, outstanding loans would be forgiven; thus, borrowers with less than $12,000 in debt could see their loans forgiven after only 10 years of repayments and an additional year per additional $1,000 borrowed, up to a cap of 20 years for undergraduate and 25 years for post-graduate loans. This approach would allow low-income older debtors to save for retirement as they would only be required to repay a portion of their income. 


Ending Social Security Garnishing

In March 2024, more than 30 members of Congress called on the Social Security Administration to end the garnishing of Social Security benefits to repay federal loans – calling it “a particularly devastating practice for seniors and people with disabilities who rely on Social Security as their sole source of income.” This reform would help protect retirees and older workers who are already financially precarious. This basic protection would help many American seniors stabilize their finances, improve their economic security, and be able to retire.