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Student loan debt isn’t just a problem for newly minted graduates.A report released Wednesday by Barclays says 15.5 per cent of outstanding student loan balances are held by borrowers age 50 to 59, and an additional 4.2 per cent is held by people 60 and older.
And “these borrowers account for a larger share of the past-due balance outstanding, with those older than 50 responsible for 16.9 per cent of the past-due balance and those older than 60 accounting for 4.8 per cent,” Barclays said.
The average student debt burden for borrowers older than 60 is $18,250.
Most student loans have a 10-year repayment plan, Barclays said, but debt owed by older Americans hasn’t been paid on that traditional schedule.
Moreover, “there is little reason to think that someone in retirement will suddenly attain the means or motivation to make on-time payments after having gone years without making them,” Barclays said.
Defaults on student loans will likely be a fiscal drag on the U.S. government, which accounts for about 90 per cent of the student loan market, Barclays said.
“Federal student loans do not require borrower credit checks, and we believe that default rates, which have risen in recent years, will continue to do so,” the report said.
A report by the government’s Consumer Financial Protection Bureau about student loans is due out soon, Barclays said.
Outstanding student loan debt has surpassed $1 trillion, exceeding the amounts owed on credit cards and auto loans.
In another troubling development, Barclays said the growth has been driven mostly by an increase in the number of borrowers who owe money on student-loan debt, and less by a rise in per capita debt. For example, from 2002 to 2010, the level of outstanding student loans rose by 174 per cent, though average debt per borrower increased by 13 per cent.
Still, despite the surge in student debt and the potential problems it might create, Barclays doesn’t believe that student loans pose the same threat to financial markets as other types of credit.
“If defaults skyrocket, the burden of dealing with any problems that arise from student loans will fall on the federal government,” Barclays said.