As the nation prepares for the resumption of federal student loan repayments in October, millions of Americans are gearing up to meet their monthly obligations.
Among these borrowers are some Social Security beneficiaries who may risk having a portion of their Social Security income garnished due to outstanding student loan debt.
Concerns for Social Security Beneficiaries
However, new protections implemented under President Joe Biden’s administration will delay any potential garnishments as payments restart.
According to Betsy Mayotte, President and Founder of The Institute of Student Loan Advisors, the earliest anyone could face Social Security garnishment would be late fall of 2024.
This delay gives borrowers some breathing room, but the issue remains a concern.
Recognizing the potential financial hardship Social Security beneficiaries face, a group of Democratic Congressional lawmakers recently reintroduced the Protection of Social Security Benefits Restoration Act—this bill, spearheaded by Reps. John Larson and Raul Grijalva in the House and Sen. Ron Wyden in the Senate aim to prevent the federal government from garnishing Social Security benefits of debtors who fall behind on student loans or other non-tax national debts.
“Social Security is an earned benefit Americans have paid into their entire working lives, and garnishing these already-modest benefits to recover student loan debt hurts their ability to retire with dignity,” said Rep. Larson.
Garnishing Social Security benefits can result in an average reduction of approximately $2,500 in annual Social Security income, as estimated by the Center for Retirement Research at Boston College, based on 2019 data.
This amounts to roughly 4% to 6% of household income, which could be used for various expenses.
The problem of Social Security garnishment due to student loan debt has been on the rise.
A 2016 Government Accountability Office report noted that the number of Social Security beneficiaries facing garnishments for student loan repayment increased more than fivefold between 2002 and 2016, affecting at least 114,000 beneficiaries.
Kate Lang, Director of Federal Income Security at Justice in Aging, explained that the older population’s student debt has significantly increased over the past 15 years.
Efforts to provide relief, such as the potential for up to $20,000 in federal student loan forgiveness, faced challenges and needed to materialize as intended.
However, the Biden administration has introduced new initiatives to assist student loan borrowers as they prepare to resume repayment.
One such initiative is the “on ramp,” which grants borrowers a 12-month exemption from the worst consequences of missed or late payments.
The Fresh Start Program Offers Relief from Default and Garnishment Risk
Additionally, a one-time program called Fresh Start is available for debtors with defaulted federal loans, offering special benefits and assistance to help them get out of default.
Mayotte highlighted the significance of the Fresh Start program, emphasizing that it eliminates the risk of garnishment during its duration and restores the borrower’s good standing, enabling them to access income-driven repayment plans.
Furthermore, the Biden administration has introduced a new income-driven repayment plan, reducing borrowers’ obligations to just 5% of discretionary income.
This significant reduction in monthly payments may ease the financial burden for many borrowers, including older individuals.
Despite these measures, the resumption of federal student loan repayments remains a concern for older borrowers.
Justice in Aging has endorsed the legislative proposal to prevent Social Security checks from being garnished, providing additional protection. However, passing such a bill into law remains a challenge.
Lang also noted that Social Security beneficiaries who have their benefits garnished are guaranteed at least $750 per month in benefits.
However, this threshold has yet to be adjusted for inflation since the 1990s, increasing the risk of affected beneficiaries falling into poverty.
In closing, Lang highlighted an option for some Social Security beneficiaries to have their loans discharged if they have a total and permanent disability, with no requirement to meet the Social Security Administration’s specific definition of disability. Instead, this process involves a doctor certifying that their physical condition prevents them from working.