As federal student loan payments restart, some older borrowers’ Social Security benefits may be at risk

Federal student loan repayment is set to restart in October following a pandemic hiatus that has been in place since March 2020.

Millions of Americans will be on the hook to make monthly payments on those debts, including some Social Security beneficiaries. But if those debtors fall behind on their federal student loans, that may eventually put a portion of the income they receive from Social Security benefits at risk.

However, new protections put in place under President Joe Biden as payments restart will delay any garnishments from happening.

“The earliest I can see someone getting their Social Security garnished would be late fall of 2024,” said Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a provider of student loan advice and dispute resolution.

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Last week, a group of Democratic Congressional lawmakers sought to get ahead of the issue and reintroduced a bill to prevent the federal government from garnishing Social Security benefits from debtors who fall behind to repay student loans or other non-tax federal debts.

The Protection of Social Security Benefits Restoration Act was introduced in the House by Reps. John Larson, D-Conn., and Raul Grijalva, D-Ariz., and in the Senate by Sen. Ron Wyden, D-Oregon.

“Social Security is an earned benefit Americans have paid into their entire working lives, and garnishing these already-modest benefits to recover student loan debt hurts their ability to retire with dignity,” Larson said in a statement.

The reduction in annual Social Security benefits from such garnishments can be about $2,500 on average, the Center for Retirement Research at Boston College has estimated based on 2019 data. That represents about 4% to 6% of household income, which may instead be used to cover other expenses, according to the Center for Retirement Research.

The number of Social Security beneficiaries who had a portion of their Social Security benefits taken by the government for student loan repayment increased by more than five times between 2002 and 2016, according to a 2016 Government Accountability Office report. At least 114,000 beneficiaries saw their Social Security checks garnished when they fell behind on student loan repayments, according to the research.

“The amount of student debt held by older adults has gone up dramatically in the past 15 years or so,” said Kate Lang, director of federal income security at Justice in Aging, an organization devoted to fighting senior poverty.

One effort to alleviate that debt burden, the promise of up to $20,000 in federal student loan forgiveness, fell through in June when the Supreme Court struck down President Joe Biden’s plan. The administration has provided other targeted debt forgiveness, and has said it plans to pursue additional forgiveness of federal student loan balances where possible.

The Biden administration has unveiled new plans to help alleviate student loan borrowers’ financial burdens as they begin repayment on their federal debts.

A 12-month “on ramp” will exempt borrowers from the worst consequences of missed, late or partial payments. For debtors with defaulted federal loans, a one-time temporary program, called Fresh Start, will provide special benefits and help them get out of default.

“Anybody who is in default now that is worried about their Social Security or even just regular wages being garnished should take advantage of the Fresh Start program,” Mayotte said.

Not only does the program eliminate the risk of garnishment for its duration, but it also puts the borrower back in good standing so they can take advantage of income-driven repayment plans, Mayotte noted.

In addition, the Biden administration has also unveiled a new income-driven repayment plan that cuts borrowers’ obligation to just 5% of discretionary income. That may cut many enrollees’ previous monthly payments in half, and will leave some with no monthly bill.

That plan may be able to help older borrowers reduce their monthly payments. “We’re hopeful about that process,” Lang said.

Nevertheless, for older debtors, restarting federal student loan debt payments may be a struggle.

“We’re very concerned about what’s going to happen next month once collections starts up again,” she said.

Justice in Aging has endorsed the legislative proposal to prevent Social Security checks from garnishment, which may help provide additional protections, according to Lang. Yet this kind of bill has been proposed in the past and not made it into law, she said.

Social Security beneficiaries who have their benefits garnished are guaranteed at least $750 per month in benefits, Lang noted. But that threshold has not been adjusted for inflation since it was established in the 1990s, which means affected beneficiaries face a greater risk of being pushed into poverty.

Some Social Security beneficiaries may qualify to have their loans discharged if they have a total and permanent disability, according to Lang. Notably, this does not require having to meet the Social Security Administration’s definition of a disability. Instead, the process requires the debtor have their doctor fill out a form indicating their physical condition prevents them from working.

“That’s an opportunity that a lot of older adults don’t know about,” Lang said, particularly if they don’t think of themselves as a person with a disability who may be eligible for that kind of discharge.