Americans over 55 years old flunk the “student loan literacy” test. We have a generational divide in one of today’s biggest economic issues.
We said in our last blog post a couple days ago that it was the last one in our series about student loans. But we noticed this issue that demanded attention.
The Test That Older Folks Do So Badly On
Maybe we’re showing our own bias, but we think in general that older folks—if for no reason than by simply having been around for longer—know things.
But they don’t know student loans, nor the means by which the government and its collection agencies can collect on student loans. A low percentage of people 55 years old or older can accurately answer a relatively simple question, a question that more than twice as many people who are younger than 55 answer accurately.
To pass the “student loan literacy” test a person would have to know that if a student loan borrower can’t pay his federal student loan, the government can do all of the following to collect the debt:
A. Report that the student debt is past due to credit reporting agencies.
B. Garnish wages until the debt, interest, and fees are all paid.
C. Retain tax refunds and Social Security payments until the debt, interest and fees are paid.
Only about 17% of the 55 year or older gave the right answer (the government can do all 3 of these), while about 35% of those younger than 55 did.
Given how much has changed in the cost and financing of a college education in the last generation or two, maybe it’s not surprising that older folks don’t understand what is a relatively new phenomenon. For most of them, student loans were not a part of their lives at all. For those who did have student loans, they were relatively modest in amount. And in any event, it’s not something most 55+ year old Americans have had to think about for decades, except possibly for their kids or grandkids.
The Oversized Policy Impact of the Older Population
Most federal policy-makers are likely 55 or older. About 35% of American voters are 55 or older. Because they vote in higher proportion than younger Americans, and are wealthier, their political power exceeds their already large numbers.
The Result of This Difference in Younger and Older Populations
Student loans have become an enormous economic problem. Not only has total student loan debt quadrupled in less than 10 years to become more than $1.1 Trillion. Not only have total student loans now greatly surpassed the amount of credit card debt and vehicle loans. Not only have student loans gone from comprising less than 1/8th of all non-housing household debt 10 years ago to approaching nearly half of all such debt. Not only have student loan delinquencies risen rapidly, doubling in just the last 4 years to about 12% of loans. Now, as part of all this, student loan borrowers are beginning to retreat from the housing and auto markets because of poorer credit scores than their brethren who have no student loans.
Although more and more older Americans owe student loans—either their own or their children’s—the vast majority of student loan debtors are still under 55 years old. So, older Americans are so much more out of touch with the practicalities of owing student loans.
With student loans not so much on the radar of these older Americans, the huge economic problems related to student loans are not so much going to be on the radar of Congress. Although the Obama administration is taking various initiatives to address the problem—see the first few blog posts in this student loan series—there is only so much that it can do without legislation. The concern is that Congress and the government overall will be found sleeping at the switch as it did with the mortgage and housing crisis.