For the tens of millions of retirees who depend on Social Security for a major part of their financial well-being, even the smallest increase in their monthly benefits can make a big different in their ability to support themselves in retirement. But alarmingly, an increasing number of Social Security recipients face a threat that has taken away some of those hard-fought benefits -- and that threat is coming directly from the federal government in the form of garnishments due to student loans.
The rising tide of Social Security garnishment
A recent report (link opens PDF) from the Government Accountability Office highlights some troubling statistics concerning student loans, older Americans, and Social Security benefits. Between 2005 and 2013, federal student loan balances grew substantially for the population overall, recently topping the $1 trillion mark. Yet the pace of borrowing for those aged 65 and older is accelerating more than the broader trend, with debt levels growing more than sixfold to more than $18 billion in 2013.
Older Americans are in a much weaker position to maintain and repay debt than their younger peers who still earn wage income. As a result, it's not surprising to see higher default rates for those 65 and older than for those in younger age groups. But the extent to which those default rates climb is shocking, with more than half of all loans to those 75 or older in default.
Because of the financial stress that older Americans face, the federal government has increasingly resorted to offsets of Social Security benefits in order to repay delinquent student loan amounts. Overall, the number of people seeing their benefits garnished has quintupled to 155,000 over the last 11 years, and among those 65 and older, the rise from 6,000 in 2002 to 36,000 in 2013 marks an even faster growth rate.
In addition to the challenge that older Americans face, those who suffer from disabilities bear an even larger burden from the government's garnishment efforts. In 2013, more than 100,000 people under the age of 65 receiving disability benefits had their payments offset because of their student loan liabilities, dwarfing the number of retirees who had benefits withheld.
What makes those disability figures particularly surprising is that in general, borrowers who suffer from the total and permanent disabilities that make them eligible for Social Security benefits also qualify to apply to have their federal student loan balances discharged.
What will the government do?
The GAO notes that the government faces a balancing act in determining future policy on Social Security and student loans. On one hand, limits already exist that prevent the government from taking more than a certain amount away from Social Security and other federal benefits, and those limits help to ensure at least a base minimum amount that every recipient will keep regardless of outstanding debts. Yet clearly, efforts to boost those minimum benefit levels and thereby reduce the amount of garnishment taking place would hamper the federal government's collection attempts with respect to its student loan program. As a result, the government has to choose between its desire to keep older Americans out of poverty while also avoiding the moral hazard of unpaid student loan balances.
Interestingly, the trend toward greater loan balances among older Americans appears not to come from the needs of financing the educations of their children and grandchildren. The GAO found that more than 80% of debt held by those between ages 65 and 74 was for their own education, rather than for that of family members. What that indicates is that in many cases, older Americans either aren't handling long-held student debt during their careers or they're incurring more debt late in life to attend school in retirement.
For now, the conclusion that most policymakers have made is that the problem isn't large enough to warrant wholesale changes to Social Security and the laws governing allowable collection activity. If the trends that the GAO identified continue, though, then action will become necessary to avoid an even larger impact from student-loan defaults.
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