Americans Borrow Heavily from 401(k)s, Have Big Trouble Paying Off their Debt

Americans borrow heavily from 401(k)s but loan defaults are up

The default rate on 401(k) loans hit 17.4% in the 12 months through May, compared with 9.7% in mid-2008, before the financial crisis.

Americans are borrowing huge amounts of money from their 401(k) retirement plans — and then having big trouble paying off their debt, according to a new study.

Defaults on 401(k) loans have totaled as much as $37 billion a year in recent years, far higher than previously estimated, according to the analysis Monday by two researchers.

The default rate hit 17.4% in the 12 months through May. That’s down slightly from the 19.8% peak in mid-2010, but up dramatically from 9.7% in mid-2008, before the global financial crisis.

The study was written by Robert Litan, a researcher at the Ewing Marion Kauffman Foundation and the Brookings Institution, and Hal Singer, a managing director at Navigant Economics.

The study shines a spotlight on the severe financial duress that many Americans are suffering in the troubled U.S. economy.

In recent years 20% to 28% of people eligible to borrow from their 401(k) accounts have an outstanding loan at any given time, the study said. Americans had borrowed a collective $105 billion from their 401(k) accounts as of 2009.

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Comments
One Response to “Americans Borrow Heavily from 401(k)s, Have Big Trouble Paying Off their Debt”
  1. neidermeyer says:

    No surpirse , here ,, they’re just borrowing their own money and spending it while it still has value ,, before the Fed and Geithner inflate it away to nothing …

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