The government appears to be making a u-turn on its recently announced policy change regarding Social Security benefit garnishment for federal student loan borrowers who have defaulted on their payments. Last Tuesday, a spokesperson for the Department of Educations confirmed that, “Borrowers who have defaulted on their federal student loans will no longer be at risk of having their Social Security benefits garnished.”
Here is what you need to know.
Social Security benefits safe from garnishment
As of May, the government had begun collections from the individuals who had been in default of their loan payments. According to a report from the Consumer Financial Protection Bureau in January, “an estimated 452,000 people aged 62 and older had student loans in default.”
For nearly half a decade prior to now, the government held off on collections for defaulters due to the COVID-19 era policies that had been put in place. Previously, under the previous administration and former President Joe Biden, the Department of Education made several attempts to broadly forgive student loans, however, these attempts were nipped in the bud by the courts.
As such, since the post pandemic resumption of collections, the department has not garnished Social Security benefits. Furthermore, it has paused “any future Social Security offsets,” according to department spokesperson Ellen Keast.
“The Trump Administration is committed to protecting Social Security recipients who oftentimes rely on a fixed income,” Keast further added.
There are around 5.3 million borrowers currently in default and advocates are encouraging the Trump Administration to go the extra mile with regards to providing relief for this cohort.
“Simply pausing this collection tactic is woefully insufficient,” explained Persis Yu, executive director of the Student Borrower Protection Center. “Any continued effort to restart the government’s debt collection machine is cruel, unnecessary and will further fan the flames of economic chaos for working families across this country.”
Partly due to rising tuition fees, more students have been compelled to borrow heavily, and as a result of this, student loan debt with the older cohort of people has also grown at a staggering rate. “People 60 and older hold an estimated $125 billion in student loans,” according to the National Consumer Law Center. When compared to two decades ago, this figure shows a sixfold increase in the present.
Subsequently, “that led Social Security beneficiaries who have had their payments garnished to balloon from approximately 6,200 beneficiaries to 192,300 between 2001 and 2019,” as per the CFPB.
What are people saying?
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.”
According to department officials, less than 40% of borrowers are current on their student loans. If a borrower has missed payments for nine months, they go into default. This is then reported on their credit score which could then lead to a domino effect of repercussions, for instance, the borrower would have troubling securing finance for a car of house in the future.
On April 21, Mike Pierce, the executive director for the Student Borrower Protection Center, shared in a statement, “For 5 million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine. This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.”