February 27, 2017
Most people expect to pay student loan debt for at least 10-20 years of their life, but what happens when your loan, in either principal or interest, is not fulfilled by the time you hit retirement age?
Currently, 40 million Americans hold student loan debt. Studies suggest that borrowers who are above age 50 owe about $205 billion in total. One in three borrowers above age 50 are likely in default. That means that about 114,000 of Americans with student loan debt, are above the age of 50 and are having a portion of their Social Security check garnished to pay their loans.
What Could Happen
Even though most people aren’t aware of this, the reality is that borrowers who default on their loans and reach retirement age are required to repay their loans with a portion of their Social Security benefits check each month. This is called a benefit ‘offset.’ In 2015 alone, the US Government Accountability Office’s (GAO) Social Security Offset Report said that nearly $171 million of all student loan payments were collected through Social Security offsets.
Typically, the government offers borrowers a variety of options to help them avoid defaulting on a loan payment. But, once the loan defaults, the government has a significant amount of power to collect the unpaid amount by garnishing wages, tax returns, disability checks and even SSA benefits.
Unforeseen Side Effects
The government’s ability to garnish money from a borrower was originally set up to protect both the government and the taxpayers, as they will ultimately be paying any unpaid debt on federal loans. This ability was also established in order to prevent borrowers from taking out large loans with no plans of repayment. Although it is logical, there are effects that can harm borrowers whose loans are still unfulfilled at retirement age.
In its report, the GAO found that one of the worst side effects to offsetting loans was that the amount decreased was large enough to take an individual’s monthly payment below the federal poverty line. The SSA originally tried to prevent this by implementing a threshold to protect the recipient, by stating that $750 must be left for the borrower. Unfortunately, this threshold was created in 1998 and has not been adjusted since to reflect recent costs of living (which in 2016 was $990 for a single adult).
Additionally, many older borrowers who are subject to offsets continue to remain in default for many years and, in most cases, see their total loan amount increase. This happens because the payments are being made to satisfy interest first while the balance continues to grow.
Student loan debt can be hard to manage at any age, but especially when it impedes on your ability to live well during retirement. If you or someone you know is having trouble with their student loan debt or their Social Security benefits, please contact the experienced lawyers at Disability Associates for help.