The Social Security Administration (SSA) pays benefits checks to around 70 million Americans each month. Some of these beneficiaries, however, may see a reduction in their benefit amount for June if they happen to also be behind on paying off their federal student loan debt.
Here is what you need to know.
Social Security checks to get cut for student loan defaulters
Around 450,000 Americans aged 62 and above were said to be in default of their student loan payments according to the Consumer Financial Protection Bureau. Many individuals of this cohort were also likely to be beneficiaries of Social Security. Previously, thanks to provisions that had been in place due to COVID-19, those who were behind on their repayments were protected from collections.
In April, the new Trump Administration, however, confirmed that as of May, aggressive debt collection practices will begin again. As such, starting from May 5, those who have defaulted on payments could have a portion automatically deducted from their Social Security check.
“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,” Tom O’Hare, a holistic college adviser at Get College Going, shared with Newsweek.
In order to recover what they are owed, the federal government will be able to withhold up to 15% of an individual’s benefit under the Treasury Offset Program. For instance, if a beneficiary is receiving the average $1,976 monthly benefit and they are in default of their loan payments, the government could garnish 15% from this benefit meaning that the beneficiary would lose $296.40 monthly. The unfortunate truth is that many of these beneficiaries rely heavily on their monthly benefits to get by and having such a considerable chunk garnished from their check each month could have dire consequences.
“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,” O’Hare added.
Can you avoid garnishment?
There are options made available to those who wish to set up a system of repayment for their loans. A payment plan can be set up in order to avoid garnishment.
“First, reach out to your loan servicer. They can guide you through available options like deferment, forbearance, or creating a flexible repayment plan,” Bethany Hubert, a financial aid specialist at Earnest, explained to Newsweek. “Programs like income-driven repayment can adjust your monthly payment to better match your budget.”
Conversely, it is crucial to note that benefit garnishments are just the tip of the iceberg for those who remain in default of their loan payments. Important benefits such as such as “deferment, forbearance and the ability to choose a repayment plan that fits your financial situation” could all be lost if you continue to miss your payments. Furthermore, you may lose the ability to receive further federal student aid which could negatively impact your ability to continue your education.
Credit bureaus also receive reports of the default which will then result in your credit score taking a major hit. Subsequently, with a bad credit score, your eligibility to finance major purchases such as a vehicle or property later could also face negative impact.
In a May 5 statement, Secretary of Education Linda McMahon said, “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.”
Mike Pierce, the executive director for the Student Borrower Protection Center, shared in a April 21 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.”