More than 44 million Americans owe an estimated $1.67 trillion in student debt — and Baby Boomers lead the pack over other generations.
Boomers owed 33% more debt in 2020 vs. 2019, due in part to Parents Plus loans secured for children and grandchildren, according to more than 250,000 loans surveyed by Fidelity.
“People in their 50s and 60s should be preparing for retirement,” said Asha Srikantiah, head of Fidelity Investments' student debt program. “This is the first generation taking on debt of up to $100,000 to support one or more kids through college.”
Surprised? Brookings research confirms a similar trend: Higher-income Americans owe the most dollar-wise in student loans, and Boomers hold the most assets.
Data from the Federal Reserve Survey of Consumer Finances also show that upper-income households account for the bulk of monthly out-of-pocket payments for student loan debt, which has grown from $811 billion in 2010 to $1.6 trillion today.
The highest-income 40% of American households (those with incomes above $74,000) owe almost 60% of outstanding education debt and make almost three-quarters of the payments.
The lowest-income 40% of households hold just under 20% of the debt and make only 10% of the payments.
Blame big tuition bills on graduate school. In 2019, households with graduate degrees owed 56% of the outstanding education debt — an increase from 49% in 2016, federal data show.
Americans are also pulling more money out of their retirement accounts this year, according to Fidelity.
Amid the coronavirus, the number of people who have an outstanding loan against their 401(k) rose sharply, from 13.9% in 2019 to 23% in 2020.
“This increase is a concern, as these loans can have a dramatic negative impact on 401(k) balances, particularly among younger retirement savers who have a longer time horizon and greater potential in their early years to save more,” she said.
Student loan payments resume
Principal and interest payments on federally held student loans were automatically suspended through Dec. 31, 2020.
Will that be extended into next year? Possibly.
The CARES Act suspended principal and interest on federally held student loans. That affects most American borrowers: Federal student loan programs account for about 92% of the student loan funds disbursed in recent years, according to the Philadelphia Federal Reserve.
“It’s possible it will be extended again, as President Trump signaled the extension may yet again be revisited in December,” said Mark Kantrowitz, president of Cerebly, and a longtime analyst of the college finance market.
New debt collection rules
Debt collectors can now email and text us more frequently. On Friday, the Consumer Financial Protection Bureau finalized rules for debt collectors, allowing them to communicate with consumers electronically. Under Trump’s appointee, Kathy Kraninger, the CFPB has loosened restrictions on debt collectors.
Debt collectors cheered the CFPB rule, which proposed a call cap of seven calls within a seven-day period, and then once every seven days after that. As for email, the CFPB did not issue a specific limit.
In a victory for consumers, the final rule “drops some of the more outrageous elements," said Jack Gillis of the Consumer Federation of America, including a free pass for collection attorneys who make false, deceptive, or misleading representations.
The rule allows debt collectors to:
call consumers every day of the week and several calls a day for consumers who owe multiple debts.
use emails, text messages, and social media private messages without consumer consent, which could lead to more electronic harassment or to missed communications if sent to old email addresses.
The CFPB also allows collectors to leave voicemails for consumers, which could potentially be heard by third parties, but the final rule bars messages on postcards, including the consumer’s name or mentions of “an account.”
The final rule gives consumers more control in some respects, by allowing them to tell a collector to “stop calling” and requiring every electronic message to include information about how to opt out.
Still, “the Trump administration is adding insult to injury letting debt collectors endlessly harass struggling families who are choosing between food and paying bills,” said Jeremy Funk, spokesperson for Allied Progress, a pro-consumer nonprofit in Washington.
The new rules may apply to student loans as well.
Although the federal government is exempt from the Fair Debt Collection Practices Act, the collection agencies the federal government uses to collect defaulted student loans are not. “So, this regulatory change will apply to both federal and private student loans,” Kantrowitz said.