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The disturbing trend of people losing Social Security benefits to student debt

Blank U.S. Treasury checks are seen on a roll at the Philadelphia Financial Center. Millions of older Americans are having their federal benefits garnished to repay student loan debt. (Matt Rourke/Associated Press)
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To recoup student-loan debt, the government is leaving people who rely on Social Security with benefits that fall below federal poverty guidelines, the Government Accountability Office said Tuesday.

The number of older Americans defaulting on education loans has steadily increased in recent decades, as many have returned to college or co-signed loans for family members. Unpaid debt has resulted in the government garnishing the benefits of 114,000 people age 50 and older in the past year, more than half of whom were receiving Social Security disability rather than retirement income, the GAO report said.

Garnishment exacerbates an already precarious financial situation for the 67,300 older borrowers who receive benefits below the poverty guideline, which is set at about $990 a month for a single adult. Even though no more than 15 percent of a recipient’s monthly Social Security payments can be taken in debt collection, that threshold has never been adjusted to reflect the increased cost of living.

“We can’t be garnishing people’s Social Security in a way that puts them into poverty,” said Sen. Claire McCaskill (Mo.), the ranking Democrat on the Senate Special Committee on Aging. “We need to make sure that we have adjusted the ability of the government to recover those loan amounts in a way that is not spiraling people into poverty.”

A senator calls attention to the struggle of seniors losing Social Security benefits to student debt

In April 2015, McCaskill and Sen. Elizabeth Warren (D-Mass.) asked the GAO for information about the money that seniors are left with after their payments are cut, the average duration of garnishment, the effect of student debt on retirement savings and the number of recipients who die without paying off their loans, among other things.

Researchers found that at the time of their initial Social Security garnishment, nearly half of borrowers age 50 and older had held their student loans for 20 years or more. A majority of these borrowers owed less than $10,000 when their benefits were first cut and many were hit with the maximum reduction, the GAO said. Seventy percent of the money collected through this form of garnishment from borrowers of all ages was applied to fees and interest, not the principle amount owed. Treasury charges a $15 monthly processing fee for wage and benefit garnishment.

And although Social Security cuts for many older Americans ended within a year, those with balances exceeding $20,000 endured the reduction for five years or more, according to the report. About 13 percent of borrowers older than 50 died with outstanding student loans.

Some people have been granted financial hardship exemptions, while others have successfully applied for permanent disability discharge of their loans through the Education Department. But researchers at the GAO are critical of the agency’s byzantine application process that puts borrowers at risk of falling back into garnishment. If people do not submit annual documentation to verify their income, their loans can be reinstated and the cuts can resume.

The Obama administration has been identifying severely disabled borrowers and guiding them through the steps to discharge their loans. With the help of the Social Security Administration, education officials found 179,000 permanently disabled people in default on their loans earlier this year. Advocacy groups, however, worry that people are still falling through the cracks.

Obama to forgive the student debt of permanently disabled people

“Our government is shoving tens of thousands of seniors and people with disabilities into poverty through garnishment every year — and charging them $15 every month for the privilege — just so that the Department of Education can collect a little bit more interest and keep boosting the government’s student loan profits,” Warren said. “This is predatory and counterproductive.”

At the end of last year, Warren co-sponsored legislation that would exempt Social Security benefits from being garnished by the government. Although the bill stalled in committee, she is urging Congress to revisit the legislation in light of the GAO’s findings.

Researchers at the GAO are calling on lawmakers to adjust the 15 percent limit to reflect cost-of-living changes, and for the Education Department to clarify requirements for disability discharge. McCaskill said she plans to introduce legislation that would bar Social Security from being garnished if it places people below the poverty line.

“Even Scrooge would hesitate to say it’s a good idea for the government to be putting Social Security recipients into poverty trying to recover payments on student loans,” she said.

Seizing paychecks, tax refunds and Social Security benefits has long been a controversial way to collect on taxpayer-funded college loans. The government uses the same tactics to recoup child support and unpaid taxes. It is usually a last resort, but one that can really harm seniors relying on disability or retirement benefits.

More seniors are carrying student loan debt into retirement

There has been a 10-fold increase in the amount of student debt held by people age 65 and older, from $2 billion in 2005 to $22 billion a decade later. Even though people younger than 50 hold the largest amount of debt, a greater share of older borrowers were in default on their student loan and became subject to garnishment last year.