Retirees Risk Social Security Garnishment for Defaulted Student Loans

As the financial landscape for retirees evolves, a pressing concern has emerged for those who have defaulted on student loans: the potential garnishment of Social Security benefits. While the pandemic brought temporary relief from student loan collections, the scenario has shifted with the resumption of efforts to recover debts.

When the COVID-19 pandemic hit in March 2020, the Trump administration implemented a pause on collecting student loan debts. This reprieve extended until October 2023 under President Joe Biden. However, while Biden's administration chose not to pursue defaults aggressively, the Trump administration has now recommenced collection activities.

Earlier this month, the Department of Education began to enforce collections on defaulted loans. This move means borrowers must resume payments or risk having their Social Security checks targeted.

Though most individuals with student loans are still in the workforce, a significant number—nearly 3 million—are over 62. Among these, 452,000 are currently in default.

The federal government has several mechanisms for recovering these debts, including withholding tax refunds and garnishing Social Security payments. This action is part of a broader federal collections program.

For retirees depending on Social Security, defaulting on student loans could result in reduced monthly benefits. Under federal law, Social Security benefits exceeding $750 per month can be garnished. This amount, totaling $9,000 annually, is below the federal poverty level of $15,650 for an individual.

One might question the fairness of this policy, considering borrowers are expected to repay their loans. However, many individuals approaching retirement have been repaying student loans for years, often exceeding the principal amount due to high-interest rates and fees.

Efforts to alleviate this burden through loan forgiveness were attempted by the Biden administration, but the Supreme Court struck down the proposal in 2023.

The resumption of collection activities means seniors with outstanding student loans face difficult choices: make payments or risk losing part of their Social Security income. For many, this leaves them in a precarious financial situation with limited support from the current administration.