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  • Writer's pictureChris Stein, CFP®

Student Loans and Social Security

Student loan debt is usually thought of as a younger person’s issue, but a new report suggests that older Americans are also facing the challenge of paying back federal student loans. Several months ago the U.S. Government Accountability Office (GAO) released a report on the effects of student loan debt on Social Security recipients.  The study noted that an increasing number of older Americans are defaulting on their student loans. These older borrowers are jeopardizing part of their SS benefits because benefits can be garnished to pay back the loans. This can be a large problem for some because SS makes up a substantial portion of their income.

GAO Report

Among other things, the GAO report revealed the following:

  1. The Dept. of Education can garnish up to 15% of your SS benefits to offset your defaulted student loan.  However they cannot leave you with less than a $750 SS benefit, so for lower wage workers there is a floor that protects at least $750 of benefit. Unfortunately, that $750 floor was put in place in 1998 and has not been adjusted for cost of living. This puts some SS recipients below the federal poverty line for an individual.

  2. The defaulted debt can belong to the retiree OR be a defaulted loan where the retiree has co-signed for a child or grandchild.

  3. Of the $1.1 Billion collected between 2001 and 2015 through SS offsets, 71% went to pay fees and interest. Many people subject to the offset saw their outstanding balances continue to increase despite the offset.

Particularly for lower wage earners, this potential reduction of their already small Social Security benefit should act as yet another warning about the dangers of taking on too much student loan debt.  And remember that it can be debt you have co-signed, not just your own.

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