Half of elderly borrowers tapped national pension loans for medical bills, data show

This year, one in two users of the Silver Loan — a national pension-backed emergency lending program for the elderly — has borrowed money to cover medical expenses, data show. It marks the first time since the program's launch that medical-purpose loans have overtaken housing deposit loans, reflecting a deepening subsistence-driven demand among older borrowers. Experts said that as the Bank of Korea's rate-hike stance is expected to push borrowing costs higher, policy safety nets like the Silver Loan must be strengthened and their funding secured to prevent vulnerable elderly borrowers from being driven toward high-interest lenders.

According to data on the Silver Loan obtained Friday through the office of Rep. So Byeong-hun of the Democratic Party of Korea, the program had disbursed a total of 31.26 billion won ($21 million) across 5,125 cases as of the end of June. The government raised this year's Silver Loan budget to 54 billion won — more than 40 percent above last year's original budget of 38 billion won — yet the program had already consumed roughly 58 percent of its annual allocation in the first half alone. The program ran out of funds entirely in early July last year, forcing a suspension of new applications.

Introduced in 2012, the Silver Loan is available to national pension recipients aged 60 and older and provides loans for housing deposits, medical expenses, funeral costs and other living expenses. The program is designed to ease the debt burden on elderly borrowers with low credit ratings who would otherwise have no choice but to turn to high-interest lenders outside the formal financial system. Borrowers can receive up to 10 million won, within twice their annual pension benefit. Given its emergency-fund nature, the loan is disbursed within three days of application.

Its low interest rate has earned the program a reputation as an emergency cash window for retirees. The Silver Loan applies a variable rate linked to the yield on five-year government bonds, reset each quarter; the rate for the third quarter of this year stands at 2.92 percent. That is up 0.41 percentage points from a year earlier but still below 3 percent — roughly half the 4 to 5 percent rates charged on senior-targeted loan products at commercial banks. The National Pension Service is the only public-sector institution offering elderly borrowers emergency living funds at a rate in the 2 percent range.

The share of medical-purpose loans in the first half of this year hit a record high since the Silver Loan's launch. By number of approved cases, medical loans totaled 2,525 — or 49.8 percent — surpassing housing deposit loans (2,493 cases, 49.2 percent) for the first time. The medical share had long hovered between 35 and 40 percent before climbing into the 40 percent range after 2021; this year it approached 50 percent for the first time. The program was also used for spousal funeral expenses (38 cases, 311 million won) and disaster recovery costs (16 cases, 150 million won) in the first half.

Analysts say the Silver Loan's subsistence-driven character has grown more pronounced this year. By loan amount, housing deposits still account for the largest share at 19.3 billion won, or 61.7 percent of the total, compared with 11.5 billion won, or 36.8 percent, for medical expenses. However, individual housing deposit loans tend to be larger, so the fact that medical loans — covering treatment and hospitalization costs — have overtaken housing loans by case count points to a surge in essential medical borrowing. Even in absolute terms, the medical loan amount was about 900 million won more than in the first half of last year, when it stood at 10.6 billion won.

If current demand continues, there are concerns that the budget could be exhausted before year-end — as it was last year — forcing a suspension of new loans. This year's budget was raised substantially to 54 billion won, yet it is still about 7.1 billion won short of last year's actual disbursements of roughly 61.1 billion won. Despite restrictions on renewal loans for the same housing unit — introduced to protect new applicants — more than half the annual budget had already been spent by the end of the first half.

Demand has grown every year since basic livelihood recipients became eligible for the Silver Loan in 2024. The expansion of mobile applications to cover medical expenses this year, which improved access for elderly borrowers with limited mobility, is also seen as a contributing factor. Rep. So said, "The rise in medical loans backed by national pension collateral reflects the growing subsistence-driven financial needs of the elderly" and added that "we need to closely monitor monthly disbursement trends and take preemptive action — including securing additional funding in advance — if budget exhaustion appears likely."

Experts said that as the Bank of Korea moves toward further rate hikes and borrowing costs rise, programs like the Silver Loan targeting vulnerable elderly borrowers must play a stronger policy role. Higher interest rates increase the debt-servicing burden, and tighter household lending regulations raise the bar at commercial banks, making it more likely that elderly borrowers will be pushed toward secondary financial institutions or high-interest lenders. Some commercial banks have recently introduced emergency living expense loans for pension recipients under an inclusive finance initiative, but the loan ceiling of around 500,000 won falls far short of what is needed to substitute for the Silver Loan.

Since the tightening of borrower-level debt service ratio regulations in 2022, the borrowing capacity of elderly people without stable post-retirement income has been shrinking steadily. According to the Bank of Korea's household debt database, the average bank loan balance per borrower aged 60 and older fell for two consecutive years — from 81.31 million won at end-2021 to 80.54 million won at end-2023. It has since edged back up but remained at 81.31 million won at end of last year, the same level as four years earlier. That contrasts with increases of 8.0 percent and 11.4 percent for borrowers in their 30s and 40s, respectively, over the same period.

As a result, the number of elderly people borrowing from multiple financial institutions is also rising. According to the Financial Supervisory Service, the number of multiple-debt holders aged 60 and older — those borrowing from more than one financial institution — reached 313,806 in the first quarter of this year, up 10.5 percent from the end of last year. Their combined loan balance grew 12.5 percent to 23.95 trillion won. Multiple-debt holders in their 20s through 40s all declined over the same period, while those aged 60 and older posted double-digit growth. The Bank of Korea's data also showed that the share of multiple-debt holders among borrowers aged 60 and older reached 16.0 percent at the end of the first quarter — the first time it has crossed the 16 percent threshold in roughly five years.

The Bank of Korea has also flagged concerns that elderly borrowers, whose post-retirement income streams tend to be relatively unstable, may feel the impact of any given rate increase more acutely than younger borrowers. In response, the bank's research institute, in a report titled "Changes in Monetary Policy Conditions Due to Super-Aging and Their Implications," said it is necessary to "utilize an integrated policy framework that organically combines various policy tools to achieve policy objectives."

Bank of Korea Gov. Shin Hyun-song, at a press conference after the bank raised its benchmark interest rate from 2.50 percent to 2.75 percent on Thursday, addressed the burden on vulnerable borrowers from monetary tightening. "Policies that can ease difficulties — such as debt restructuring — are needed," he said, adding that "fiscal policy or financial policy seems more appropriate than monetary policy." He added: "We keep vulnerable groups and vulnerable borrowers in mind at all times, and in this area, coordinated policy with the government and financial authorities is important."