Retirees With Student Debt Could Lose Some Social Security Benefits This Year
Older adults who are behind on their student loan payments could soon face harsh consequences as 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 could be at risk of losing some of their benefits to garnishment by the Department of Education. In total, nearly 6 million borrowers in default could face forced collections in the coming months.
Those figures come from a new Consumer Financial Protection Bureau (CFPB) report on the outlook for Social Security garnishment for older student loan borrowers in the aftermath of a years-long reprieve.
All collections activity was paused during the COVID-era student loan payment pause as well as the subsequent "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 would not 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 benefits," the report said.
Borrowers fall into default after missing nine months of payments.
Despite a dedicated program to help borrowers get out of default during the pandemic, millions remained in that payment status as of last year, and these are the borrowers who could be at risk of garnishment in 2025.
Older Americans with student debt are the fastest growing segment of borrowers, with the number of borrowers who are 62 and older surging 60% since 2017. That's one reason more retirees are losing Social Security benefits to garnishment. The growth 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 new light on the severity of the problem before the pandemic, finding that the number of Social Security beneficiaries facing reduced benefits due to forced collections rose from around 6,200 in 2001 to 192,300 in 2019. (The last year with data since collections stopped in early 2020.) During the same period, the amount garnished increased from $16.2 million to $429.7 million.
There are limitations on how much money the government can garnish from an individual's Social Security benefits. But the amount that's completely protected ($750 per month) is well below a poverty level income and has not increased in almost 30 years, according to the CFPB report.
The report also states that "the majority of money the Department of Education has collected has been applied to interest and fees and has not affected borrowers’ principal amount owed." This means that when borrowers see their Social Security checks cut due to garnishment, the money taken from them often does not even reduce their debt.
How to avoid Social Security garnishment for student loan debt
Borrowers who may be facing payment difficulties but are not in default are not at immediate risk of involuntary collections.
Noting that many borrowers could not 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 most 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 consider 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 if you're already in default, those flexibilities aren't available to you. For those borrowers, the Department of Education has resources for how to make repayment arrangements. A loan rehabilitation agreement, in which a borrower in default agrees to make nine "reasonable" payments in a timely manner, could prevent garnishment.
There may be other options, too. According to the CFPB report, "as many as eight in ten Social Security beneficiaries with loans in default may be eligible to suspend or reduce forced collections due to financial hardship. Moreover, one in five Social Security beneficiaries may be eligible for discharge of their loans due to a disability. "
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