Apparently, grandparents have a lot of student loan debt.
One of the biggest contributors to debt for senior citizens might surprise you: It’s student loans.
As of 2021, over 8 million individuals over the age of 50 accounted for 22 percent of the $1.7 trillion in student debt owed in this country. Even more terrifyingly, one in three of those borrowers said they didn’t think they’d be able to pay off those loans before they die.
It’s not clear what percentage of those borrowers are paying off their own loans, or the loans of a child or grandchild. It’s likely a mixture of both: according to a 2014 Fidelity survey, an estimated 53 percent of grandparents were helping or planning to help with college costs for their grandkids, with the average grandparent chipping in around $25,000 (the survey doesn’t specify whether that money was meant to cover loan costs or go straight into tuition). In that same survey, 55 percent of grandparents also admitted that they were nervous about being able to afford retirement — and when you put those two statistics together, the picture becomes heartbreaking.
The implications of a debt crisis like this are dizzying, no matter which generation you decide to focus on. For younger borrowers, loans can hamper their ability to build a stable financial future. For older borrowers, loans can do the exact opposite: Completely destroy one’s financial foundation, right at the time they need it the most, retirement.
As a parent or a grandparent, your instinct is to help. This is true in many circumstances, but it might ring especially true for moments like college tuition, where costs have skyrocketed so much in recent decades that it has truly become a near-insurmountable cost for one person to pay off, alone.
To get to the bottom of this growing issue, Katie Couric Media spoke with Jill Schlesinger, CFP, an Emmy Award-winning business analyst for CBS News, where she translates complicated business and economic news into understandable, relatable information for everyday viewers and listeners.
Below, Schlesinger breaks down what’s at stake with your financial portfolio, when it comes to loaning a family member money — either for tuition payments or for help with loans down the line. She also gives advice about how to know whether you’re personally in a position to help your kids and grandkids, or whether it’s time to say one simple word: No.
Why it’s so risky to offer to help for college when you’re over 50 years old
Let’s get one thing straight immediately: Even if you think you’re totally stable, you’re still taking on a major risk if you agree to pay for someone else’s tuition or co-sign on their loans.
“I’m often asked by a grandparent, ‘What’s the best way for me to save for my grandkid’s college?'” Schlesinger says. “I’ll normally say something pretty boring, like, ‘You can look into a 529 plan [as a tax-advantaged way to save for tuition], but tell me about yourself first.’ I want to know their full financial profile before I give them advice. And then they tell me about themselves, and I say, ‘Wait a minute, what extra money are you putting into this account? You don’t have extra money.'”
It’s normal to underestimate just how long you’re going to live and how much it’s going to cost along the way. This is especially true for those who are in their 50s and 60s, who may be approaching retirement age, but who will still likely live for decades to come.
“If you’re 60 years old right now, you could live for 35 more years,” Schlesinger says. “Have you actually run a calculation to determine if your money can last you that long? If you haven’t, I encourage you to do so.”
How to figure out where you stand financially before you offer help to anyone
A million dollars used to be a milestone financial figure, the type of savings that would free a person from worrying about money ever again.
Unfortunately, as Schlesinger points out, that isn’t the case anymore.
“If you have a million dollars and it’s in a pre-tax retirement account, then you don’t even have a million dollars,” she clarifies. “You’re going to owe taxes, and that’s immediately going to go down to $750k.”
For the sake of this hypothetical, let’s say you have a million dollars after taxes. “That figure is likely to generate about $25-30,000 in interest every year,” Schlesinger says. “That’s the number you should be counting on. It has to be inflation-adjusted, obviously but just even just for today, ask yourself: Could you live on that interest?”
Let’s say you make your own calculations about what you currently have saved, and how much you can comfortably live off of every year, and the numbers aren’t adding up. “In that case, number one, you have to keep working longer,” Schlesinger says. “Number two, you absolutely cannot be giving money away to your kids or your grandkids.”
Even if you think you’ll be able to make more in the future or live off less, Schlesinger worries you might regret a big loan down the line.
“Let’s say that you give away a bunch of your money, and you then find yourself short on it at 88 years old,” Schlesinger says. “Now you have to ask your kids and your grandkids to help support you. Do you want to be in that position?”
How to say no to children and grandchildren who ask for help with tuition costs
If you find yourself considering taking on someone else’s student debt, you might see any number of reasons to say yes. You should probably say no anyway. Or, at the very least, you should think very specifically about what you can afford to give away and stick to that number even if it doesn’t cover the whole debt.
“In my mind, I would rather people have a very sober conversation about what they can really afford to do,” Schlesinger says, “rather than just opening the floodgates and saying to their kids, ‘Wherever you want to go, we will help pay for college.'”
Instead of making an open offer to help, be clear on what you can afford. If it’s not enough to cover the whole loan that a family member wants to take out, then Schlesinger suggests you say this: “If you choose to go beyond this number, then you’re going to have to take the loan out yourself.”
There’s no getting around the fact that this conversation might be profoundly uncomfortable. But as Schlesinger noted above, most people simply can’t afford to co-sign on a major loan in the latter half of their life, and when they do, they often end up shifting the burden onto their kids a few decades later when their own money runs out.
