College Debt and Long Term Care – Unrelated? Maybe not
I have written and spoken in the past about the dangers of grandparents paying for a grandchild’s college education if they haven’t planned for long term care first. That payment may not be subject to gift tax laws but will be subject to a Medicaid transfer penalty. However, there is another disturbing trend that is hitting seniors hard and it is a growing problem.
As the cost of college education continues to soar so does the amount of student loan debt, now totaling over $1 trillion. Almost 90% of that is from federal student loans and the federal government is getting more aggressive in pursuing repayment. Changes in the laws have given the government more ability to collect from defaulting borrowers. Student loans are not dischargeable in bankruptcy, unlike credit card debt, for example.
The government, under a 1996 law, has the ability to collect the debt from Social Security retirement and disability checks and it is doing just that with increasing frequency. In the year 2000 there were 6 cases in which Social Security recipients checks were reduced to cover college loans on which they were delinquent. In 2007 that number was 60,000 and in the first 7 months of 2012 that number was up to 115,000.
For many seniors on fixed incomes reducing their Social Security checks, which in many cases are already meager, will have a devastating impact. In many cases parents and grandparents have cosigned loans for their children and grandchildren. Over the years I have had numerous calls from people who signed loan agreements as a “cosigner” or “guarantor”, not understanding the legal significance of that commitment. If the primary borrower defaults on the loan the lender can collect from the cosigner.
With statistics showing that many babyboomers are not saving enough for retirement and the cost of long term care continuing to climb, adding college debt to the equation just adds to the complexity of the problem. And is yet another example of why you can’t wait till a medical crisis hits to figure out how you will pay for long term care. Your physical and financial wellbeing depend on it.