For the time being, an estimated 452,000 people over the age of 62 who have defaulted on federal student loans will not have to worry about their Social Security payments being garnished. The move, confirmed by a Department of Education spokeswoman, signals a fundamental shift in the government’s strategy to recovering outstanding student debt.
Shortly after the official resumption of federal student loan collections following a halt during the COVID-19 pandemic, the announcement was made. Many senior borrowers expressed serious worries about the restart, especially those who depend on Social Security as their primary or only source of income.
Student Loan Relief: Social Security Checks Off-Limits for Debt Collection
Those on Social Security who are behind on their education loans may temporarily feel relieved as the US Department of Education has announced that it would suspend efforts to seize Social Security benefits from persons who have defaulted on student loans. The agency earlier said in April that collections will resume as soon as June 1 following an almost five-year break. That was shocking news for individuals who rely on the cheques to fulfill their monthly expenses.
The Treasury is also implementing other offsets, such as wage garnishment for past-due taxes and federal student loans, which will start later this summer. More than 450,000 Americans of above 62 have fallen behind on their student loan payments, 90% of the 1.3 million Social Security claimants who have student loans depend on an average monthly payment of USD 1,523.
Social Security checks could shrink for 452,000 Americans
More than half a million Americans who owe money on their federal student loans might get small Social Security payouts this month, according to news reports. More than 450,000 Americans of age above 62 who were in default on their student loan payments were supposed to receive SSA benefits, according to the CFPB.
Individuals who were late on payments were sheltered from collection in recent years due to safeguards implemented during the coronavirus outbreak. However, the Trump administration stated in April that aggressive debt collection attempts will resume in early May.
On May 5, the White House resumed offsets for defaulting loans, including automatic withholding from Social Security payments. To collect on federal student loans that have fallen into default, the TOP allows the federal government to withhold up to 15% of an individual’s SSA payment. With a 15% garnishment, the average monthly Social Security benefit of $1,976 would be reduced by $296.40.
Social Security provides most, if not all, of the retirement income for millions of Americans and so, garnishments may negatively impact their financial status. Debtors can, however, regain good standing on their federal student loans in a few different ways.
Advocates Demand More Action to Protect Vulnerable Borrowers
- According to NCLC, seniors over 60 have around USD 125 billion in student loan debt, which has increased sixfold in the last 2 decades. This huge increase is partly due to the consistent rise in college tuition costs, which has driven many people to borrow beyond their means.
- The CFPB reports that between 2001 and 2019, the number of persons whose SSA payments were garnished due to student loan defaults has been raised, that reflects an aggressive debt collection program that has received widespread criticism for unfairly affecting elderly persons.
- While the Education Department’s action provides temporary relief, many activists and public policy experts believe that a more lasting and systemic solution is required to solve the student debt issue among older borrowers. For the time being, hundreds of thousands of Social Security claimants will be keenly watching the federal government’s future actions.
What to do if you are in default
If you have fallen behind on your debts or are unsure of your status, the pause will give you some time.
En-roll in a re-payment plan
If your income & marital status have not changed recently, you can fill the latest Federal 1040 tax return, either signed by you or stamped by your tax preparer, to ED’s Default Resolution Group. In order to enroll in one of the several income-based repayment plans, this is the first step.
Financial hardship and disability discharges
According to the CFPB, up to 8 out of every 10 Social Security recipients with defaulted loans may be eligible to delay or minimize coercive collections due to financial hardship. To show hardship, you must present documents to the Department of Education proving your earnings and expenses. If your qualified monthly costs exceed or equal your income, the department may award you a financial hardship exemption.
According to CFPB analysts, one out of every five Social Security claimants may be eligible for loan discharge owing to a disability. Under the Total & Permanent Disability Discharge program, federal student loans are cancelled and forced collections has been halted for handicapped borrowers who are under some specific criteria.
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