The relentless pace of the Federal Reserve’s rate hikes are coming against a backdrop of large numbers of older adults struggling economically and taking on debt to make ends meet.
Even before the pandemic, debt was growing among older households. And the pandemic hit older adults especially hard. They experienced outsized health and employment impacts and weren’t eligible for some of the more generous forms of pandemic relief, which focused on families with children at home. And even as the economy has rebounded, for many older adults, economic pressures continue.
Last year, poverty rates for those over age 65 went up, while falling for other age groups. And it’s not only those at the very bottom of the economic ladder who are struggling. The share of people reporting difficulty paying regular expenses (things like groceries, rent, and healthcare) has nearly doubled over the last 12 months and now stands at 35% among those 65 and over. Given these headwinds, many older adults are relying on debt to make ends meet.
Housing debt is a case in point. The recent boom in home prices has been assumed to be an unmitigated blessing for older homeowners, but it has come with downsides. It is true that the low interest rate environment that prevailed until the first quarter of 2022 provided borrowers unprecedented opportunities to refinance into lower rate refinance mortgages and even to cash out equity thanks to the run up in home prices. There is evidence, however, that older white borrowers have benefited much more than Black borrowers from this opportunity. It is also true that this extra cash may have enabled older homeowners to manage higher costs for utilities and maintenance on their properties. But, the run up in housing values has also meant higher property taxes, the timing of which can be unexpected and therefore difficult to manage on a fixed income. Additionally, carrying a mortgage increases the risk of homeowners becoming “cost burdened.” A household is considered cost burdened when they spend at least 30 percent of their income on housing and utility costs. Before the pandemic, 43 percent of owners age 65 and over with mortgages were considered housing cost burdened, a significantly higher share than those who owned their homes free and clear. Housing experts find that when faced with greater housing burdens, people cut back their spending on necessities like food and healthcare. Nearly four in ten homeowners aged 65 and over carried a mortgage last year, according to data from the Census Bureau’s American Community Survey, so there is the potential for large numbers of older homeowners, especially those with outstanding mortgages, to become housing cost burdened, particularly as they face multiple demands on their incomes from still high energy costs in the winter.
For older renters, of course, the housing boom has had no real upside, only higher rents across the U.S. And the trend of climbing rents showed no sign of abating according last week’s Consumer Price Index data. The “shelter index” component of the CPI saw its largest monthly increase since August 1990. Last year, more than six in ten renters over the age of 65 were housing burdened last year, the highest share of any age group. With no sign of rents falling dramatically any time soon, we can expect the pain to continue for elderly renters, particularly if they also owe money as interest rates are rising.
Medical debt also weighs on many older households. According to my analysis of the Survey of Household Economics and Decisionmaking, last year more than 4.4 million seniors reported having medical debt, and 11.2 million reported facing unexpected major medical expenses that had to be paid out of pocket, because they were not completely paid for by insurance. The Biden Administration and Congress tackled this financial challenge with its landmark prescription drug provisions of the Inflation Reduction Act. It will bring significant cost relief to seniors. Unfortunately, its full impact won’t be felt until in 2024 and beyond as its various provisions gradually take effect. Meanwhile, rising interest rates directly translate into rising costs for anyone carrying variable rate debt and thus further burden struggling older households.
Finally, there is the disturbing, rapid growth of student debt among the elderly. Not only are more and more seniors carrying student debt, whether taken out to finance their own educations, or those of children and grandchildren, but the amounts they owe are larger than ever. Before the pandemic pause on repayment, older adults with student loans were the age group most likely to default, and facing the risk of garnishment of their Social Security benefits. President Biden’s cancellation of student debt will be lifechanging for many borrowers, but unfortunately, it won’t be enough help for older borrowers whose debts have grown to multiples of the amounts originally borrowed because of the compounding effect of interest over decades and decades. With an end to the payment moratorium looming, more help for older borrowers is not only fair, but practical – the reality is that many of these debts will never be repaid, and garnishing borrowers’ Social Security benefits is simply punitive for those who need their modest benefits just to cover the basics.
The Biden administration and Congress did much to help struggling older households during the pandemic – for example, allowing older working adults to claim the earned income credit and expanding SNAP benefits – but this relief has or will soon expire. The widespread indebtedness of many older households, especially in the face of rising rates, means that policymakers should act quickly to bring back these forms of relief to shore up those who are most at risk of being wiped out.