Americans who rely on Social Security to cover their basic living expenses may soon see smaller monthly checks if they still have student loan debts. A government move now in effect could reduce Social Security benefits for Americans who have defaulted on their federal student loan and some could be hit hard financially.
This move comes after a directive from the Trump administration to collect student loans. That means the government can now garnish Social Security checks to collect on defaulted student loan debts. This process is set to start as soon as June.
Those who solely rely on Social Security benefits to cover their living expenses could be impacted severely since the benefits could be reduced by up to 15%, according to higher education expert Mark Kantrowitz.
Social Security Offsets Resume
During the COVID-19 pandemic, the federal government had paused collections on federal student loans, including garnishments of Social Security checks. The Biden administration had also extended the pause, but President Trump’s leadership ended the protection. The Department of Education confirmed that the move to collect defaulted loan debts is now in effect, and involuntary collections have resumed as of May 5.
This change means that borrowers who have defaulted on their loans could see their funds seized, wages garnished and Social Security checks docked automatically. The Department of Education also said that it sent the required notice, but some consumer advocates warn that many borrowers were not properly informed.
Who is at Risk?
According to recent federal data, about 3 million people aged 62 and above have federal student loan debt and this is a 71% increase from 2017. Of those, 450,000 borrowers defaulted their federal student loans while receiving Social Security monthly benefits.
Many of these borrowers are not former students but parents who co-signed or took Parent PLUS loans for their children. Due to financial hardship, like job losses, some have fallen behind on payments and now face deductions to their monthly Social Security benefits.
What You Can Do
If you have received a notice that you defaulted on a student loan and your Social Security check is at risk of being garnished, you have the following options:
1. Request a hearing to contest the offset if you are facing financial hardship, have a pending loan discharge, or can prove that garnishment of your Social Security benefits could push you below the poverty line. You must submit documentation promptly to the Treasury Department or its collection agency.
2. Rehabilitate your loan by negotiating an affordable monthly payment plan to bring your loan back into good standing. You can also opt for consolidation, which may be quicker, although it might increase your overall interest.
3. Enroll in income-driven repayment if you rely solely on Social Security income. Under an income-driven plan, your monthly student loan payment may be $0, avoiding default in the future and also preventing your Social Security benefits from being garnished.
Plan Before Retirement
If you still have student loans and are still working and approaching retirement, this is the time to act. You should consider paying your loans because defaulting could reduce your Social Security check significantly in the future. It could be sensible to even delay your retirement and continue working until your loans are current or resolved.
Also, revisit your savings strategy and consider increasing contributions to retirement accounts or reducing your expenses. The government’s move to collect defaulted student loans is now in effect, so act now if you still have a student loan to protect your financial future.