Social Security beneficiaries who had taken out student loans in the past but have still not paid off that debt could see their monthly benefit checks being garnished until the debt is cleared — and it appears that this garnishment will begin as soon as June.
Social Security payments to be garnished
Earlier this month, an announcement from the Department of Education confirmed that “involuntary collections efforts” would begin on those who had defaulted on their federal student loans. The total number of borrows stands at around 5.3 million and of this figure, approximately 425,000 of these borrowers are aged 62 and above.
Garnishments of this nature could mean a steep reduction to the monthly benefits of the older cohort since the money is taken out of the benefit before the check is even sent out.
“You don’t ever see it hit your bank account,” says Bryan Bibbo, a national Social Security advisor and president of financial firm JL Smith. A benefit could be reduced by anything from 15% to 65% until the debt is paid off. The exact percentage is determined in relation to who and how much is owed.
Fortunately for Social Security beneficiaries, special protections against garnishments are in place. “You’re not going to have your Social Security benefit reduced if it’s credit card debt,” according to Krisstin Petersmarck, a national Social Security advisor and owner of New Horizon Retirement Solutions.
This means in the case of medical or consumer debts, the benefit cannot be touched. Other legal processes such as bankruptcy or civil lawsuits cannot be paid off by garnishing benefits either.
However, “Social Security is protected from garnishment, but it’s not untouchable,” according to Bibbo. Social Security garnishment can, in a broad sense, be used to repay child support, alimony or restitution, and debts owed to the federal government.
“I would say the vast majority of garnishments are for child support,” says Rae Hartley Beck, a certified financial planner candidate and former Social Security claims specialist.
Garnishment limits
Past-due payments are collected from beneficiaries by the Treasury Offset Program (TOP) and the maximum amount that TOP can garnish is dependent on the type of debt owed. The following are the upper limits of garnishment:
- Federal debt (student loans or taxes) – 15%
- Child support or alimony for a beneficiary that supports another child or spouse – 50% (55% if the original support order is more than 12 weeks in arrears.)
- Child support or alimony for a beneficiary with no other child or spouse – 60% (65% if the original support order is more than 12 weeks in arrears.)
“There is a rule that they must leave you with at least $750 to live on,” Bibbo states. “But that rule only applies to garnishments for federal debts. For child support and alimony, it’s a different story. There’s no floor to the amount of money garnished (for those reasons).”
It should also be noted that garnishment can be pulled directly from your bank account in the case of consumer debts, even though Social Security cannot be garnished — provided the financial institution received a court order for garnishment.
In the event of this happening, the financial institution is require to “protect two months’ worth of Social Security benefits when fulfilling the order.” For example, if your benefit is $1,000, the bank is required to keep $2,000 in you account and the rest of the cash may be garnished regardless of its source. These protections only apply to those who receive benefits via direct deposit. Those who receive benefits by check will have to go to court to retrieve any protected benefits.
If you think you are at risk of garnishment, the optimal course of action is to begin making repayments and chatting with the IRS or loan servicer to know what repayment plans and options you have.
“If you have a tax lien, theoretically you could go get a personal loan,” Beck claims. If it is approved, that loan will be protected from Social Security garnishment. However, it is still not a course of action recommended by her.