Will You Lose Social Security Because of Student Loans?

thief coming after money

Thief coming after money | iStock.com

Millions of Americans rely on Social Security to get by in their old age, but some are finding their monthly check is smaller than they expected. Roughly 114,000 Social Security recipients over age 50 are losing an average of $140 a month because of unpaid student loan debt, a new report from the Government Accountability Office found. The number of people who receive smaller Social Security checks because of outstanding student loans has increased 540% in the past decade, according to the report requested by Senators Claire McCaskill and Elizabeth Warren.

More than half of people subject to garnishment have sub-poverty level incomes – less than $990 per month — after the government takes its cut. Overall, the federal government collected $171 million on defaulted student loans through the garnishments in 2015.

Not only are indebted Social Security recipients losing money, but the payments often do little to reduce their total debt. Of the money the government collected, 70% went to fees and interest, not to pay down principal. Many people whose benefits are withheld have little hope of seeing their checks return to normal unless they can find some other way to pay off what they owe.

“This report shows us that seniors clearly aren’t immune to the student loan crisis — they’re deeply impacted by this issue to the point that it’s leaving many of them in a dire financial situation,” McCaskill said in a statement. “We could have hundreds of thousands of American seniors living in poverty due to garnished Social Security benefits if this trend continues, and we shouldn’t allow that to happen.”

Social Security cards

Social Security cards | iStock.com/marcusamelia

One frustrated Social Security recipient has sued the government to stop the garnishments. Hector Rodriguez, who receives Social Security Disability Income, says no one informed him he was eligible to have his loans discharged. Instead, the government let debt collectors come after the money he needed to live.

Disabled Social Security recipients are one of the few groups eligible for student loan forgiveness, which will stop the garnishments. But others who are losing benefits because of unpaid student loans may be out of luck. The government can garnish Social Security, tax refunds, and wages in order to collect on past-due federal student loans.

Will I lose my Social Security?

Once federal student loans go unpaid for nine months, the government can start siphoning off 15% of your benefits. The garnishments will continue until you pay the debt or work out an alternative payment plan. One more nasty trick? Unlike other creditors, the government can do all this without taking you to court.

Most people won’t have to worry about losing their Social Security benefits because of their student loan debt. Ideally, you’ll have paid off your student loan balance long before you retire and start drawing government benefits. Or, if you do still have debt, you’ll be making on-time payments.

The real risk is for people who fall behind on their student loan payments and also receive Social Security. Many who are currently having their benefits garnished went back to school in their 50s, so they haven’t yet had time to pay down their loans. A significant number are disabled and can no longer cover their debt payments. And some are parents who borrowed money to help their kids pay tuition. (Thirteen percent of parents around age 50 are paying off loans they took out to send their children to college, a University of Southern California study found.)

What can I do to prevent garnishment?

A pile of burning money

A pile of burning money | NRCC

If you’re in dire financial straits and can’t pay your debts, you must take swift action. Otherwise, you risk having your Social Security checks garnished.

If you have a severe disability, you can ask to have your federal student loans canceled. In 2016, the Department of Education began proactively reaching out to borrowers who are eligible for a total and permanent disability discharge to inform them of the steps they needed to take to have their loans forgiven. But even if you haven’t received such a notice from the Department of Education, you may still be eligible for a discharge. You can review the Federal Student Aid website to find out what you need to do to apply for loan cancellation if you’re disabled.

Other struggling borrowers need to let their lender know as soon as possible if they’re having trouble making payments. You may be able to switch to a new payment plan, such as income-based repayment, that will make your monthly bills more affordable. If you really can’t afford to pay your debt right now, forbearance may be an option. Loan consolidation may also make your payments more manageable. The worst possible option is to do nothing and slip into default. At that point, garnishment becomes a very real possibility.

Can I stop Social Security garnishment?

stressed man looking at a laptop

Stressed man looking at a laptop | iStock.com

If you get a notice that the government is going to start garnishing your Social Security because of unpaid debts, you still have options. You can request a hearing within 30 days of receiving the notice, which will temporarily halt the garnishment. At the hearing, you may be able to show why your check shouldn’t be garnished. For example, perhaps you’ve actually been making on-time payments, qualify for discharge, or the garnishment would cause a severe financial hardship.

Once garnishment starts, you can work out a loan rehabilitation agreement with your lender. With loan rehab, you agree to pay an extra amount each month (perhaps as little as $5) for a certain amount of time in order to eventually end the garnishment. Once you complete the loan rehab process, the default on your credit report disappears. Then, you’ll be on the path to getting your finances back in order – and getting the full Social Security payment you deserve.

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