Older adults who’re behind on their student loan payments could soon face harsh consequences because the federal government prepares to resume collections on overdue debt.
As many as 452,000 Social Security recipients who’ve defaulted on federal student loans might be liable to losing a few of their advantages to garnishment by the Department of Education. In total, nearly 6 million borrowers in default could face forced collections in the approaching months.
Those figures come from a latest Consumer Financial Protection Bureau (CFPB) report on the outlook for Social Security garnishment for older student loan borrowers within the aftermath of a years-long reprieve.
All collections activity was paused throughout the COVID-era student loan payment pause in addition to the next “on-ramp” period that was intended to ease borrowers back into repayment. The on-ramp officially ended Sept. 30 but shortly thereafter officials confirmed that collections wouldn’t resume until 2025, after the election.
Now that protections are expiring, “borrowers with loans in default will again be subject to the Department of Education’s forced collection of their tax refunds, wages and Social Security advantages,” the report said.
Borrowers fall into default after missing nine months of payments.
Despite a dedicated program to help borrowers get out of default throughout the pandemic, tens of millions remained in that payment status as of last 12 months, and these are the borrowers who might be liable to garnishment in 2025.
Older Americans with student debt are the fastest growing segment of borrowers, with the variety of borrowers who’re 62 and older surging 60% since 2017. That is one reason more retirees are losing Social Security advantages to garnishment. The expansion in Social Security garnishment for student loan debt has concerned Democratic lawmakers, who sent a letter in March 2024 flagging to administration officials that this issue was on the horizon.
The CFPB sheds latest light on the severity of the issue before the pandemic, finding that the variety of Social Security beneficiaries facing reduced advantages resulting from forced collections rose from around 6,200 in 2001 to 192,300 in 2019. (The last 12 months with data since collections stopped in early 2020.) Throughout the same period, the quantity garnished increased from $16.2 million to $429.7 million.
There are limitations on how much money the federal government can garnish from a person’s Social Security advantages. But the quantity that is completely protected ($750 per thirty days) is well below a poverty level income and has not increased in almost 30 years, in line with the CFPB report.
The report also states that “nearly all of money the Department of Education has collected has been applied to interest and charges and has not affected borrowers’ principal amount owed.” Which means when borrowers see their Social Security checks cut resulting from garnishment, the cash taken from them often doesn’t even reduce their debt.
The way to avoid Social Security garnishment for student loan debt
Borrowers who could also be facing payment difficulties but are not in default are usually not at immediate risk of involuntary collections.
Noting that many borrowers couldn’t make payments when the on-ramp ended, the Department of Education said in a blog post that “these borrowers should know that the Department is required to report late or missing payments for many borrowers to the national credit reporting agencies in January 2025, and their loans will enter default – triggering mandatory collections and other consequences in late 2025.”
To avoid harsh consequences from late payments, the Biden administration is advising borrowers to think about several actions: applying for existing loan forgiveness programs, changing to an income-driven repayment plan with lower payments, or requesting forbearance or deferment.
But note that when you’re already in default, those flexibilities aren’t available to you. For those borrowers, the Department of Education has resources for methods to make repayment arrangements. A loan rehabilitation agreement, wherein a borrower in default agrees to make nine “reasonable” payments in a timely manner, could prevent garnishment.
There could also be other options, too. In keeping with the CFPB report, “as many as eight in ten Social Security beneficiaries with loans in default could also be eligible to suspend or reduce forced collections resulting from financial hardship. Furthermore, one in five Social Security beneficiaries could also be eligible for discharge of their loans resulting from a disability. “
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