Student Loan Repayments Pose Barrier to Retirement Savings, Survey Reveals
A recent survey indicates that resuming student loan payments will hinder retirement savings for many Americans. According to Corebridge Financial, 75% of surveyed borrowers expressed concerns that resuming student debt payments would impact their ability to save for retirement. Over 20% of respondents stated that they would have to cut back on emergency savings, and 22% planned to reduce funds allocated to retirement.
In preparation for repayment, 50% of the respondents planned to immediately cut spending on non-essential items like entertainment, while 41% aimed to secure additional employment or increase working hours. Additionally, 37% intended to trim spending on essentials like groceries. The survey also revealed that for 38% of borrowers, resuming payments might lead to loan default.
Terri Fiedler, President of Retirement Services at Corebridge, remarked, “Many Americans are likely to feel increased pressure on their personal budgets once student loan payments resume.”
Student loan repayments resumed on October 1, and interest had started accruing on student loans since September 1. This followed the end of a three-year moratorium during which millions of borrowers believed they would receive up to $10,000 in federal loan forgiveness under President Joe Biden’s debt relief plan. However, the plan was ultimately blocked by the U.S. Supreme Court in June. Student loans typically cover 25% to 50% of college tuition costs, and over 50% of borrowers hold debt ranging from $10,000 to $60,000, as reported by Scholaroo.
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Impact of Loan Repayments on Gen Xers’ Retirement Prospects
A recent analysis by the National Institute on Retirement Security (NIRS) reveals that around 13% of Generation X individuals still carry federal student loans, with an average balance of approximately $40,000. This persistent student debt is significantly affecting their retirement plans, with these borrowers exhibiting lower net worth and an increased likelihood of falling short of their retirement savings goals.
While Gen Xers with student loan debt tend to possess higher annual incomes due to their college education, they face challenges in accumulating substantial net worth and achieving their targeted retirement savings. This struggle is, in part, attributed to the burden of student loan debt, as outlined in the analysis.
Tyler Bond, Research Director at NIRS, expressed concern over the impending retirement of Gen Xers, emphasizing the worrisome scenario that some still grapple with student loan debt. He highlighted the impact of ongoing loan repayments on their potential retirement savings, emphasizing that every dollar spent on loan repayment could have been invested in securing their retirement.
Bond stated, “Retirement is going to be a nightmare for too many Gen Xers, and those who continue to have the burden of debt could be saving more for this major challenge.”
For borrowers burdened with private student loans, refinancing presents a viable solution to lower monthly payments. Online tools like Credible offer assistance in comparing student loan refinancing rates, enabling borrowers to secure the best deals available.
Proposed Legislation to Cease Garnishment of Social Security Benefits
Social Security benefits can face garnishment in cases where borrowers default on federal student loans while claiming these benefits. The Social Security Administration (SSA) is authorized to withhold up to 15% of benefits to settle defaulted student loans, as outlined by the Legal Aid Society of Cleveland.
On average, delinquent borrowers could experience an annual reduction of approximately $2,500 in their Social Security benefits. This estimate, based on 2019 data by the Center for Retirement Research at Boston College, amounts to about 4% to 6% of household retirement income.
However, the practice of garnishing Social Security benefits may soon become unlawful if legislation aimed at preventing the federal government from withholding these benefits from debtors falling behind in student loan repayments or other non-tax federal debts is enacted. The Protection of Social Security Benefits Restoration Act has been introduced in the House by Reps. John Larson, D-Conn., and Raul Grijalva, D-Ariz., and in the Senate by Sen. Ron Wyden, D-Oreg.
John Larson emphasized, “Social Security is an earned benefit Americans have paid into their entire working lives, and garnishing these already-modest benefits to recover student loan debt hurts their ability to retire with dignity.”
For individuals struggling to meet payments on private student loans, federal relief may not be an option. In such cases, refinancing loans for a lower interest rate to reduce monthly payments could be a viable alternative. Visit Credible to obtain your personalized interest rate in just minutes.