What Is the Risk to OASI Benefits from Unpaid Student Loans?



While the magnitude of student debt held by those over 65 is not large, both the share of households holding such debt and the mean amount have risen rapidly since 1990.  Defaults on student loans have similarly been rising among older debt holders.  One distinct feature of federal student loans is that federal payments to individuals, including OASI benefits, can be withheld by Treasury to pay for delinquent loans.  The rising trend in default rates, in combination with potential benefit offsets for borrowers, may undermine the economic security of retirees.  Using the 2010-2019 Surveys of Consumer Finances, this paper estimates how much student debt is held by OASI beneficiaries, evaluates the financial consequences of loan delinquency, informs on future trends by examining future beneficiaries, and estimates the impact of the Biden administration’s student debt relief plan.

The paper found that:

  • Less than 2 percent of OASI beneficiaries hold federal student debt, but future beneficiaries are much more likely to have such debt as they approach retirement.
  • Almost a quarter of student loan borrowers in old age are delinquent and potentially face a 4-7 percent decline in household income due to benefit offsets.
  • Black households are more likely to be student loan borrowers and have higher delinquency rates.

The policy implications of the findings are:

  • While student loans are rare among current OASI beneficiaries, they are likely to become a bigger problem for future beneficiaries.
  • Concentration of delinquency among borrowers in racial minority groups suggests that student loan debt may become a meaningful source of racial inequality for OASI beneficiaries.
  • The administration’s student debt relief plan will substantially reduce student debt and likely narrow existing racial gaps.

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