You might be in for a financial shock this June if you rely on Social Security to cover your basic needs and have defaulted on a student loan debt. This could be the case as the government starts a new round of student loan collection efforts.
Why Social Security Checks May Be Smaller in June
Starting in June, the federal government, under the Trump administration, will resume aggressive student loan collections that had been paused temporarily during the COVID-19 pandemic. The resumption of this program has been enabled by a key tool known as the Treasury Offset program, which now gives the government the mandate to garnish up to 15% of a borrower’s Social Security benefits if they have defaulted on their federal student loans.
However, the benefits cannot be reduced to less than $750 per month. Due to the collection efforts, many retirees risk receiving checks that are close to this limit, and most of them could face severe financial hardship as the cost of living continues to rise.
Who is Affected?
According to the most recent data, Americans aged 50 and above collectively owe the government $125 billion in student loan debt. About 452,000 borrowers aged 62 and older have defaulted on their loans. While some had borrowed for their education, others took out Parent PLUS loans to support their children. These seniors are now at risk of losing part of their Social Security income to repay the defaulted loans.
Some retirees have already repaid the principal more than once, but they still owe massive amounts in fees and interest. Since it is difficult to discharge student loan debt through bankruptcy, retirees are left with few options.
How Garnished Benefits Could Affect Retirees
Experts warn that the return of aggressive collection tactics will have severe consequences for retirees, as many of them will be unable to afford basic needs such as food, medical care, and other expenses. This will be the case for those who rely solely on Social Security benefits.
Additionally, some retirees may not receive new notifications about the planned garnishment, and therefore, they might be caught unaware. Some borrowers already received warnings before the pandemic, and the Department of Education has confirmed that those warnings are still in effect.
What You Can Do If You Have Defaulted on a Student Loan
If you are at risk of having your Social Security benefits garnished in June, there are a few steps you can take. First, identify a loan servicer by visiting the Federal Student Aid Website or logging in to “My Aid Account“. You can also call the Federal Student Aid Information Center at 1-800-433-3243.
Once you have identified your loan servicer’s contact information, you can discuss options and find out if you qualify for:
- Deferment or forbearance
- Income-driven repayment plans
- Loan rehabilitation, which can remove your loan from default and halt garnishments.
Why the Default Issue is Widespread
The widespread student loan debt among retirees is tied to the rising cost of higher education over recent decades. Due to this, many Americans have had to seek federal loans as the only option to help themselves or their children earn a degree.
Conclusion
If you are wondering if your Social Security check could be smaller in June and you have defaulted student loans, the answer could be yes. The federal government is restarting efforts to collect student loans, and retirees are particularly vulnerable.
However, do not wait until your checks are reduced. Take action now to find out where you stand and explore the options discussed above. Although protecting your Social Security income is not an easy task, it is necessary or the sake of your financial stability in retirement.