A recent analysis of American debt revealed a startling shift: Borrowers between the ages of 45 and 74 now owe more money in education-related debt, on average, than do younger college graduates.
People under age 35 with student debt owe $32,900 on average, according to data from the Fed’s 2016 Survey of Consumer Finances. That debt number is higher for every other 10-year age bracket up to age 75: It peaks at $37,000 for 45- to 54-year-olds, but even 65- to 74-year-old borrowers owe an average $35,400.
That’s a big change, according to data from the Fed’s Survey of Consumer Finances, which also finds that the share of older Americans holding education debt has climbed over the past two decades.
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In 2016, almost a quarter (23.7%) of households run by people between the ages of 45-54 had education debt—almost double the 12.6% who held it in 2004—while the share of households led by 55- to 64-year-olds with education debt jumped to 12.9% from 8.7% over the same period of time. Even among 65- to 74-year-olds, 3.4% of households now hold this kind of debt; 12 years earlier, the survey couldn’t even find enough of these borrowers to calculate a percentage.
The total amount of money owed is rising too, according to data from the U.S. Department of Education. The 17% of Americans who are over age 50 and owe money on federal education loans now account for $247 billion in debt—roughly triple what this age group owed in 2003. (That figure doesn’t cover private education lending.)
What’s behind the surge? As it turns out, it’s not just aging debt stragglers.
An analysis from the Urban Institute found that, while some borrowers are still paying off their own tuition costs, a bigger culprit appears to be a spike in loans meant to assist a child or grandchild. The share of federal student loan borrowers holding a Parent PLUS loan—a type of federal loan made to the parents of undergraduates—roughly quadrupled over the period between the 1989-90 and 2011-2012 school years, an analysis by NerdWallet found.
“The spiraling cost of college education is stretching families,” says Richard Johnson, director of the Urban Institute’s program on retirement policy. “And one of the responses to that is parents and grandparents are more likely to take out these educations loans than they might have been in the past.”
Such late-career borrowing can be dangerous, especially as borrowers edge closer to retirement. Payments on the loans tie up dollars that could (and often should) be used for catch-up retirement account contributions, Johnson says.
MONEY asked several experts whether there are better options for parents and grandparents who want to help with a student’s college costs. While all expressed reservations about taking on debt for a child’s education, or draining retirement savings, they did offer a few specific strategies:
—Don’t step in till a student has maxed out aid options and their own federal loans. The rates and protections offered on federal student loans will be the best financing option.
—Tap a Roth IRA. You can withdraw any amount contributed to a Roth without paying a penalty, if you use the money to fund qualified education expenses, such as tuition and fees, says college funding expert Fred Amrein, founder of Amrein Financial and College Affordability. (You’d pay tax on any earnings, however, so avoid tapping those until you’re actually retired.)
—Look at alternate loan sources. Parent PLUS loans can carry higher interest rates than other types of financing. Student loan expert Mark Kantrowitz notes that while Parent PLUS loans currently offer interest rates of around 7%, with an additional “origination” fee that’s 4.3% of the total loan amount, a parent with excellent credit could obtain a private loan for a much cheaper rate (Lender SoFi is currently offering parents rates as low as 4.25%.) You may also find lower rates on home equity lines of credit or by borrowing against a 401(k), although both have significant drawbacks. HELOCS will become more expensive when interest rates rise; and 401(k) loans are restricted to five-year terms, and also require you to stay with your employer for the life of the loan (or have to repay the remaining balance within a short time, typically 60 days).
—Sign up for auto debit payments. “Many [education] lenders will give you a slight discount as an incentive for signing up, usually a quarter- or half-percentage point off your interest rate,” says Kantrowitz. “This move actually saves you money and you never need to worry about being late with a payment.”
—Limit yourself. Parents should borrow no more, for all children, than their annual household income, says Kantrowitz. “If the debt is less, parents should be able to pay it back in 10 years.” And there’s a corollary, he adds: “If retirement is less than 10 years away—say, only five years out—parents should borrow half as much. You want to have it paid off before retirement.”