Federal student loan payments are set to restart for the first time in more than three years in October, and many people in retirement age have outstanding student debt they previously had trouble paying. If your student loans were delinquent or in default before the pandemic, collection activities haven't been happening, wages weren't being garnished, and interest wasn't accruing.
However, with the end of the emergency COVID-19 student loan relief comes the end of many of the protections for people who have fallen behind on their loans. But what can the government do to make you pay if you're retired? Can it take your Social Security benefits?
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Can the government garnish your Social Security benefits for unpaid student loans?
The short answer is yes. The government is allowed to garnish your Social Security benefits if you don't pay your student loans. But there are some limitations and other caveats to know.
For starters, the government can garnish up to 15% of your Social Security payments if you default on your federal student loans. And the minimum it can leave you is $750 per month. For context, if you get a Social Security payment of $1,500 per month, this means that the government can take up to $225 per month.
It's also worth mentioning that the government can take your federal (and sometimes state) tax refund if you have unpaid loans in default.
The good news: You have options
If your student loans are in default or if you've fallen behind on your payments, it doesn't necessarily need to get to the point where the government is garnishing your Social Security benefits. Here are some potential actions you can take to get yourself back on track.
Get a fresh start on your student loans
The U.S. Department of Education has a one-time temporary program known as Fresh Start, which allows borrowers with defaulted student loans to get out of default and get back on track. By contacting your loan servicer, or the agency that holds your loans, you can have access restored to your federal student aid.
If you use Fresh Start, which you can apply for quickly and easily, your loans will be returned to "in repayment" status and the record of default will even be removed from your credit report. It's tough to overstate what a great program this can be if you have defaulted student loans.
Apply for income-driven repayment
If you use the Fresh Start program, you'll get to choose the repayment plan for your loans when they are removed from default. Retirees who collect Social Security benefits should absolutely choose income-driven repayment -- particularly the new SAVE Plan.
Under the SAVE Plan, millions of borrowers will qualify for a $0 monthly student loan payment. If you're a one-person household and have income below $32,800 ($44,370 for a two-person household), you won't have to pay anything on your student loans, and they will be treated as if you are making on-time payments. Even if you don't qualify for a $0 payment, the SAVE Plan limits payments to no more than 10% of your discretionary income, which is a much better option that Social Security benefit garnishment.
Get a deferment or forbearance
If you use the Fresh Start program and enroll in an income-driven program and still can't make your payments, you have options. It's fairly easy to request a deferment or forbearance from your loan servicer, especially if you can document a financial hardship.
Check to see whether you might be eligible for loan forgiveness
If you are collecting Social Security benefits, there's a good chance that your student loans are over 20 years old. Income-driven repayment plans forgive any remaining balance after either 20 or 25 years in repayment, and the Department of Education is in the process of completing a one-time adjustment to the repayment period borrowers are credited with. As it makes these adjustments in the coming months, you might even find out that your loans are eligible for forgiveness already if you enroll in income-driven repayment -- or at least several years closer to it than you think.
The bottom line
If you're collecting Social Security and have student loans you're unable to pay, it can seem like a scary situation. However, by using these suggestions to gain a better understanding of how the federal student loan system works, you may be able to not only avoid default, but also make your student loans manageable once and for all.
