Retirees: College loans a struggle Grads, co-signers can't pay bills

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1 Retirees: College loans a struggle Grads, co-signers can't pay bills Written by Ken Serrano New Jersey Press Media Jul. 7, 2013 Seventy-nine-year-old Richard Hessert s golden years have turned to rust. The Rumson man co-signed for one college loan for his 27-year-old daughter Whitney, who is struggling like many other recent college graduates to pay off student debt. It blossomed from $30,000 in Whitney s first year of school to $59,000 because of accumulating interest. Food stamps are now an option he is exploring, he said. They take a good portion of the only retirement funds I have on a monthly basis, Hessert said. The only way I can ever pay back the student loan that I have is to die. The college debt crisis is spreading deeper into families. Hessert is part of a growing group of parents, grandparents and others over 60 that has taken on five times more college debt since In the first quarter of 2005, college debt nationally for people 60 and older stood at $8 billion. In the fourth quarter of 2012, that group s debt ballooned to $43 billion, according to the Federal Reserve Bank of New York. The number of borrowers over 60 has grown during the same time frame, from 700,000 to 2.2 million. That percentage increase in debt is far greater than college debt held by all age groups in the United States. It has about tripled since 2005, rising to nearly $1 trillion. It now exceeds every kind of debt except for mortgage balances and is the only kind of debt that has continued to grow throughout the Great Recession, according to the New York Fed.

2 South Jersey financial planner Paul Tully said the circumstance the Hesserts are facing is a sad one. To walk out of college with a diploma in one hand and an invoice for $150,000 in the other is, unfortunately, not uncommon these days, said Tully, founder of West Deptford s Eagle Wealth Strategies. It s a sad situation, and you wonder how they are ever going to pay those loans back, Tully added. Most (parents) of that age are starting to wind down their careers, and for the average person their retirement funds in IRAs or 401(k)s only amount to about $100,000. Lately the burden on borrowers has gotten heavier. Between the second and third quarters of 2012, the percentage of accounts for people 60 and older that were more than 90 days past due rose from 9.6 percent to 12.9 percent before dipping in the fourth quarter to 12.5 percent, according to the New York Fed. At the beginning of 2005, the delinquency rate was 6 percent. The data does not distinguish between debt that is co-signed for or held directly. Facing financial ruin Encumbering her parents with her debt was not in Whitney Hessert s graduation plan. Nor was getting calls throughout the day from Sallie Mae operators hounding her for payment. I have dreams of someday getting out of debt, Whitney said. But those dreams are out of reach at the moment. She graduated in 2008 from Western New England University, majoring in business and entrepreneurship. At the time, it cost about $36,000 a year for tuition and room and board, she said. She ended up with $98,000 in debt, a high amount when compared with national averages, but hardly beyond the imagination, given that some private colleges cost more than $50,000 a year now. With the difficulties she experienced in repaying all her loans, including the one her father cosigned for, they have since ballooned to $187,000, she said. Whitney, a former lifeguard who saved a man s life as a teenager, works for a car dealership in Edison as an accounting assistant, having held the job for three years. Her payments are $1,600 a month. The problem: right now, that s about how much she takes home a month with all the overtime she can get.

3 Even if she were able to make those payments, it would take her until she was 55 to pay it off, she said she was told by Sallie Mae staff. Maybe before I die if I m lucky, Whitney said. The plan to support Whitney s education seemed sound before the housing bust. Richard Hessert invested in a two-bedroom condominium in Sea Bright, buying it in 2003 for $168,000. Banking on its appreciation, he was planning to use that money to pay for Whitney s schooling. But when prices fell sharply, he could not find a buyer. Renters he took on fell behind, causing him more financial grief. Then Sandy struck, damaging the property. He and his wife Lesley, 65, a registered nurse who also co-signed for one of Whitney s loans, are debating whether to let the bank foreclose on it, Richard Hessert said. He is leaning toward walking, he said. Ten years ago people thought their home equity would bail them out of everything, said West Deptford s Tully. Then the housing bubble burst and there is no equity left. For the Hesserts they re facing a double whammy. Help available Novadebt, a nonprofit credit counseling agency in Freehold Township, has seen college debt issues skyrocket among older callers, especially since the economic downturn that started a few years ago, said Sandy Shore, community liaison for Novadebt. It is absolutely a growing phenomenon, she said. They re actually getting their Social Security checks (garnisheed). The college debt problem for both young and old is so much of a problem that Novadebt recently began a separate program to help people struggling with educational debt. The number of callers and requests for college debt counseling have grown steadily since the program was launched in early spring. During the first week of May there were five counseling requests. In the third week of June, there were 47 requests, Shore said. With recent graduates, many people did not get the kind of jobs they thought they would get when they graduated, she said. Novadebt offers counseling to people in debt and those about to take on loans, Shore said. People with federal loans have access to programs offering debt forgiveness and forbearance. Private loans do not, Shore said. Most prospective college students, and the family members they may be encumbering with debt, could use it.

4 When kids make decisions about going to college, it s the finances that come later, Shore said. If they take on $80,000 in debt and are going to become an elementary school teacher it s very hard to make that kind of payment. They don t realize what the (monthly) payment is going to be. Rarely does anybody know the answer to that question. Preloan counseling involves predicting future costs for rent, car payments, etc. It makes them more cautious, she said. To offset the large amounts of money borrowed to pay for college tuition, financial planner Tully said there are steps parents can take. Parents choices, for the most part, are fairly straightforward, he said. They can begin to save via a 529 plan at an early age, using that account as a depository for birthday gifts, etc., in addition to a regular contribution. Many of these plans are good, but pretty much all are tied to the investment markets so they are not without risk. Still, given a long-term time frame (five years or more) I think these are an excellent choice. Tully said parents can also tap into retirement accounts penalty free as long as the funds are for college. But they will still have to pay taxes on that money. We may recommmend this is some cases, but are leery of tapping into retirement funds because for most people, they are going to need every bit of those to fund their own lifestyle. The New York Fed underscored the problem of college debt June 27. During a press conference, William C. Dudley, president and chief executive officer of the New York Fed, said college debt is weighing down the national recovery. It does lead to a delay in people buying consumer durables and housing, he said, adding that it is slowing the national recovery. It does deserve serious attention. Borrowing costs just went up for students. The interest rate on new, subsidized federal Stafford loans doubled on July 1 to 6.8 percent after Congress failed to vote on keeping the rates down. Rates stay at 3.4 percent on existing subsidized Stafford loans. Tough choices Financing college used to be an afterthought. Not anymore. Prospective college students really need to make hard decisions about where they attend school and how, said Jordan S. Celkupa, a certified financial planner at Robert J. Oberst Sr. & Associates in Red Bank.

5 It s going to impact everyone: parents, grandparents, Celkupa said. People were talking five to 10 years ago about how expensive college is and it s accelerated. It s a different world from five or six years ago. I don t think people realize how quickly this thing has evolved. He has not encountered many people 60 and over digging into retirement to help their children pay off college debts, he said. The help is coming in more passive ways, such as allowing adult children to live at home without rent, he said. Helicopter parents love the idea, he said. But people like Richard Hessert are no longer an exception. The way this college loan system was fostered and dropped on us, it was a ripoff from the start, Hessert said. I d like to leave and go somewhere else, but I don t know where somewhere else is.