U.S. government garnishes retirees’ Social Security checks for student loans

social SecurityAt least 22,000 Americans aged 65 and older had a part of their Social Security benefits garnished last year to the point that their monthly benefits were below federal poverty thresholds, according to the Government Accountability Office.

More than half, or 54 percent, of federal student loans held by borrowers at least 75 years old are in default, according to the federal watchdog.

“This age group is not only affected in more serious ways, but it is also going to grow,” Blumenthal continued. “In other words, this report says: Look out, the cliff is ahead, or the avalanche, [or] maybe it’s a tsunami, of older student debt.”

Social workers are also seeing an increase in the number of people with mental and health issues having their Social Security disability checks garnished according to a recent http://www.gao.gov/assets/670/665709.pdf government study.

Struggling borrowers are rarely able to discharge federal student loans by declaring bankruptcy. As a result, federal auditors noted, their student debts follow them into retirement.

As the increase in average college tuitions outpaces federal borrowing limits for undergraduates, more parents are taking out federal student loans to pay for their children’s education. But GAO auditors said the vast majority of loan balances held by older Americans is for their own educations. Among borrowers aged 50 to 64, about 73 percent of their federal student loan debt was for their own schooling. For borrowers aged 65 and older, more than 82 percent of their debts was for their own education.

Nearly 155,000 Americans had their Social Security benefits reduced last year as a result of past defaults on their federal student loans, a five-fold increase from the 31,000 borrowers whose benefits were cut in 2002. Of the 155,000 borrowers in 2013, about 36,000 of them were at least 65 years old, according to the GAO.

Part of the reason why the Education Department is putting older Americans into poverty is federal law. Existing rules governing Social Security garnishment specify that the federal government cannot seize more than 15 percent of monthly benefits or take anything that would leave Americans with checks of less than $750.

But the rules, crafted in the late 1990s, have not been adjusted for inflation. The $750 limit was above the poverty level in 1998. Had policymakers raised the garnishment level to keep up with inflation, the level last year would have been $1,073, according to the accountability office. Defaulted federal student loan borrowers with monthly checks below that limit wouldn’t have had their benefits garnished.

The Education Department refers defaulted borrowers for Social Security garnishments after the department’s collection agencies fail to recoup on the soured debt. The National Consumer Law Center criticized the department for effectively turning a blind eye to allegations that its debt collectors routinely misled distressed borrowers or provided them false information.

Last year, Education Department-initiated collections of Social Security benefits caused Americans to receive $150 million less than they otherwise would have absent garnishment. The average borrower lost more than $130 every month. The average recipient of old age, survivor and disability insurance, or Social Security, received about $1,182 a month last year, according to the Social Security Administration.

The problem is likely to get worse, the GAO cautioned.

“As the baby boomers continue to move into retirement, the number of older Americans with defaulted loans will only continue to increase. This creates the potential for an unpleasant surprise for some, as their benefits are offset and they face the possibility of a less secure retirement.”

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