The student loan indebtedness problem continues to grow in exponential ways. Forget about the noose of debt from private student loans for now.
Let’s focus on the frightening loss of needed Social Security benefits from people now eligible for Social Security but with delinquent student loans.
It used to be that the wisdom was Social Security benefits can’t be garnished so that income was safe from creditors. According to the Department of Treasury’s Financial Management Service data in 2000 only six people had their Social Security checks garnished for delinquent student loan debt. This year from January to August, 115,000 have had their checks garnished. That’s about double from last year.
A number of years ago I watched exceptions to that belief hit my radar more often. At first it was typically the benevolent grandmother that co-signed for the grandkids or their own children’s federal backed student loan as a good gesture. When the kid didn’t pay the government could garnish grandma’s social security payment.
What is most sad about these situations is the grandparents did something they though would be helpful for their children and grandchildren and it would up being hurtful when the kids can’t step up, for whatever reason, to pay the debt.
With fewer people retiring on sustainable incomes, Social Security benefits are a critical bridge to help make ends meet. Losing even 15 percent of the needed benefit can be tragic.
And why can the government do this? First off, because they can. Secondly, they can garnish your Social Security benefit up to 15 percent of the amount you are due to receive from them to offset the federal debt owed to them.
As our population gets older we should expect to see the number of Social Security checks garnished, explode. More people that have been trapped in student loans will be carrying them through to retirement. Student loan debt isn’t getting repaid in a few years, in many cases it takes decades.
The problem accelerates as more adults head back to school. Tuitions are a lot higher these days and a college degree later in life as an adult results in less working years to repay the student loan while at the same time having more general financial obligations to try and fit the payment in to.
As you can see from data from the Federal Reserve Bank of New York the number of delinquent student loans and average balance of debt continues to rise for those above 60. This is not a good trend.
To make this issue even more worrisome, as if it needed that, there is a real concern that about half of the people in middle age headed towards retirement are not saving enough money to care for themselves and will depend on Social Security to help. And with potential cuts to Social Security looming, less money may be available on a monthly basis while the number of people getting their Social Security garnished will most likely increase.
As a small sliver of hope, people that are facing such garnishments should reach out proactively to the Department of Education and inquire about repayment plans available. If you qualify for the Income Based Repayment plan (IBR) your payment can be as low as $0 and avoid the garnishment all together. You can use this online calculator to find out how low you can get your federal student loans under the Federal Direct Consolidation Loans program.