In April, the Trump Administration confirmed that Social Security beneficiaries would have their benefits garnished if they had defaulted on paying their federal student loans. It had been said that this aggressive debt collecting process would begin during May after previously being halted due to provisions that had been made due to the COVID-19 era.
Now, however, it appears that the United States Department of Education has decided to push pause on its garnishment plans for those who have defaulted on their student loans.
Here is what you need to know.
Government pauses plan to garnish Social Security benefits
For the time being, beneficiaries of Social Security need not worry about having their benefits garnished. This is because “the U.S. Department of Education is pausing its plan to garnish people’s Social Security benefits if they have defaulted on their student loans,” according to an agency spokesperson who spoke with CNBC.
“The Trump Administration is committed to protecting Social Security recipients who oftentimes rely on a fixed income,” said Ellen Keast, an Education Department spokesperson.
According to holistic college adviser at Get College Going, Tom O’Hare who told Newsweek, “A borrower who has failed to pay on their federal student loan is considered in default when the loan delinquency reaches 270 days past due. The loan is generally reassigned from loan servicers to a collection agency that works on behalf of the federal government to either litigate or implement stringent collection recovery practices, including wage garnishment and deduction from Social Security payments.”
The u-turn on this decision is making for a sudden policy change by the administration. The nation’s student loan portfolio stands at $1.6 trillion and on April 21, the Trump Administration announced that it would be resuming collections on this. Those who had fallen behind on their student loan payments previously were safe from collections for close to half a decade prior to now as a result of the COVID era policies that had been put in place.
How does the government retrieve its debt?
With regards to student loans, the collection powers held by the federal government are nothing short of extraordinary. Tax refunds, paychecks, and even Social Security retirement and disability benefits can be seized from loan borrowers. In the case of Social Security beneficiaries, up to 15% of their monthly benefit amount can be garnished to repay their defaulted loan.
The Consumer Financial Protection Bureau has determined that “more than 450,000 federal student loan borrowers age 62 and older are in default on their federal student loans and likely to be receiving Social Security benefits.”
By putting a pin in the plan to garnish Social Security benefits, the government is giving the older cohort of defaulted student loan borrowers a little bit of extra time to work out a plan to become current with their debt. Additionally, this pause will also help this cohort with preventing a reduction to their benefit amount in the near future.
During a recent conversation with CNBC, Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, shared that she was “especially concerned about the consequences of resumed collections on retirees.”
“Losing a portion of their Social Security benefits to repay student loans could mean not having enough for food, transportation to medical appointments or other basic necessities,” Rodriguez stated in an interview in April.
In a statement from May 5, Secretary of Education Linda McMahon stated, “As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students.”
“For too long, insufficient transparency and accountability structures have allowed U.S. universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market,” McMahon added.