MORNINGSTAR: Going Back to College? Avoid the Student Loan Debt Trap

Career College Central Summary:

  • Student loans–even for those in early to late middle age–have become toxic to Americans' financial well-being.
  • Older adults are not only increasingly incurring heavy debts when they go back to school, change careers, or enroll in continuing education, but they also may be saddled with something worse when they default: garnished wages or Social Security payments.
  • More than 700,000 U.S. households carry student loan debt, according to the U.S. Government Accountability Office (GAO). A big chunk of that is held by folks who are in their prime earning years. Some 63% of student debt is held by those from age 30 through 59, according to the New York Federal Reserve. Although the percentage of households age 65 to 74 with higher education debt is much smaller–only about 1%–their total amount borrowed rose by a factor of six from 2005 to 2013. Today, more than $18 billion in student debt is held by older Americans (age 65 and up), according to the GAO.
  • Where did all this debt come from? Economic factors, the higher cost of education, and the prevalence of for-profit college marketing have all contributed to the upsurge. A September 2014 GAO report states that older Americans may still hold student loan debt–which can have long repayment horizons–that they incurred many years ago or later in their careers for retraining or education. In other cases, the debt may be for their kids through Parent PLUS loans or other loans they have co-signed.
  • Debt Management (And Avoidance)

    • If you're mid-career or later and thinking about going back to school, you'll want to carefully weigh the costs and benefits. Much of the debt burden can be reduced, managed, or even avoided if you plan ahead before you even incur the debt.
    • "First, take a good look at the potential return on investment [for getting a degree] against the opportunity cost of being out of the workforce for a few years," advises Laura Shin, author of The Millennial Game Plan: Career and Money Secrets to Succeed In Today's World.
    • "If it looks like the lifetime boost in salary would outweigh the cost–this is most likely to happen with professional degrees, but can be the case with other types of degrees as well–then see if you can lower the cost by getting scholarships, or, in the case of grad school, research or teaching assistantships," Shin adds.
    • For MBAs, companies will often offer employer tuition assistance, Shin says, paying for all or a part of the tuition in exchange for a commitment to stay with the company for a certain period of time.
    • "If, after that, you still need to take out loans, then max out your federal loans first," she says. "If you can, try to avoid having to take out private loans, as they usually offer worse terms, less flexibility, and fewer protections."
    • Your first option in side-stepping loans is to seek financial aid in the form of grants (versus loans) when you apply to a college program. There's no age limit on who can apply for this kind of assistance, which doesn't need to be paid back. To find out if you qualify, fill out the Free Application for Federal Student Aid, or FAFSA, online. You will need to provide income and asset information and your latest income tax return.
    • Who qualifies for aid is up to the college. It largely depends on your income, number of children in college, and non-retirement assets–retirement accounts are not counted in the federal formula. Special circumstances such as employment and health issues also will be considered. Scholarships may be available. See for a grant search engine.

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