It's probably a fair assessment that without Social Security income many seniors would be struggling to make ends meet during retirement. Statistics confirm this, with roughly three in five retirees getting at least half their total income from Social Security.
Unfortunately, many seniors also face an uncertain future with Social Security. According to the 2016 report from the Social Security Board of Trustees, the program is slated to exhaust its more than $2.8 trillion in spare cash by 2034, at which point a steep across-the-board cut in benefits of up to 21% may be needed to extend payments safely through the year 2090. This cut in benefits is being precipitated by a number of factors that include lengthening life expectancies, the ongoing retirement of baby boomers, which is weighing on the worker-to-beneficiary ratio, and the poor savings habits of Americans, which makes them more reliant on Social Security.
But this is far from the end of seniors' Social Security concerns.
A rapidly growing Social Security problem
Another concern that's plaguing a growing number of seniors is a more than two-decade-old rule that allows the federal government to garnish Social Security benefits to cover student loan debt defaults. According to an 83-page report released by the Government Accountability Office (GAO) in December, the number of seniors who've seen their Social Security checks reduced because of student loan defaults has grown by 380% between 2002 and 2015 to 173,000 beneficiaries from 36,000.
Data shows that the number of pre-retirees holding student loan debt between the ages of 50 and 64 has more than doubled between 2005 and 2015, while the number of seniors aged 65 and up who are carrying around student loan debt is up a ridiculous 385% over the same time frame. The approximately 870,000 seniors aged 65 and up who currently have student debt have seen their total debt grow by a factor of 10 in a decade, to $22 billion from $2 billion.
Poor savings habits, and perhaps an uncertain future for Social Security, have encouraged older adults to head back to the classroom. Data from Pew Research Center has shown that a college degree can seriously aid your chances of getting a better-paying job, and older adults appear to be heeding that data. The unfortunate side effect is it's resulting in student loan debt later in life. Plus, with the cost of getting a college education rising at a much faster pace than normal inflation, the student loan debt burden on people of all ages is seemingly increasing.
What's the result, you ask? The GAO found that the number of seniors who've been pushed below the poverty line because of student loan default benefit garnishments exploded from 8,300 in 2004 to 67,300 in 2015.
A newly introduced Social Security bill aims to stop this hated practice
The rules associated with the Social Security benefits offset to cover defaulted student loan debt do have a few protections in place.
For example the maximum allowable student loan offset is 15% of a beneficiary's monthly benefits check. The GAO report found that the average offset tends to be about $140 a month. That may not sound like a lot, but over a year, we're talking about $1,680 out of the pockets of the average senior. Comparably, the average retired worker is being paid about $16,300 annually, so this translate to around a 10% cut in annual pay. What's worse, the GAO also found little of the principal debt is actually being paid off due to interest on the loan and the $15 fee charged by the Social Security Administration each month.
Additionally, in 1998, the federal government set a threshold level of $750 in benefits per month that garnishments couldn't touch. This left a guaranteed $9,000 in annual income that could not be offset. However, the threshold level hasn't been adjusted for inflation in 19 years. Had it been, the threshold would likely be near $1,100 a month today.
Some lawmakers in Congress have taken exception to the disliked practice of offsetting benefits for seniors with student loans in default. In response, Senators Ron Wyden (D-Or.) and Sherrod Brown (D-Ohio) introduced legislation last week ("Protection of Social Security Benefits Restoration Act") that would prohibit the federal government from garnishing Social Security retirement and disability benefits to repay defaulted student loans. The bill has about 10 co-sponsors, including Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.).
Said Wyden, "Americans shouldn't see their Social Security checks ripped away because of the increasing burden of student loan debt. People who have worked hard and paid into the program count on these benefits just to survive -- there ought to be basic protections to defend struggling Americans from having their earned Social Security benefits cut by the federal government."
A great idea, but the timing probably won't work
The bill certainly seems like a step in the right direction since the current regulation is pushing a number of lower-income seniors who've defaulted on their student loan debt below the poverty line.
However, it's unlikely the bill will find traction in Congress given the deep-rooted partisanship currently on Capitol Hill. President Trump has pledged not to touch Social Security in any way, and Republicans in Congress are far too focused on healthcare and tax reform to give Social Security reform the time of day. This bill appears to be a good idea, but the timing of its introduction probably gives it little hope of gaining traction and passing.
For its part, the GAO report suggested that the federal government update its now 19-year-old threshold requirement, which would save about 40,000 elderly Americans from being garnished for defaulted student loan debt. Also, it recommended that seniors with disabilities look into a total and permanent disability discharge (TPD). If a person can prove that their disability compromises their ability to generate income, their student loan debt may be partially or completely forgiven.
Clearly, this is a big issue that's only going to get bigger as the cost of post-secondary education rises. If Congress doesn't deal with it soon, a lot more than 173,000 seniors could soon see their Social Security benefits garnished by the federal government.