Older Americans who don’t service their federal student loan debt could risk losing up to 15% of their monthly Social Security benefits. And while this hasn’t been a problem for several years, some lawmakers say they are concerned that if the practice resumes soon, it could lead to more seniors falling into poverty.
Congressional Democrats sent a letter reporting the issue last week to administration officials. Falling behind on loan payments can lead to serious financial consequences for borrowers, they said, and garnishing Social Security benefits to pay off seniors’ student loan debt was a growing problem before the pandemic. But for years, thanks to the suspension of student loan payments, no benefits have been obtained.
That pause ended last fall, followed by a 12-month “on-ramp” period of temporary credit protection.
Once that amount is exhausted, however, seniors who default on their student loans could be at risk of having their benefits garnished — a “devastating practice,” according to lawmakers.
“We are concerned that borrowers will face extreme consequences associated with missed payments when protections expire at the end of 2024,” Sen. Elizabeth Warren, D-Mass., and more than 30 other lawmakers said in the letter. “At this point, many borrowers may once again face Social Security offsets due to defaulted student loans.”
Generally, borrowers who had defaulted before the payment break were given a “fresh start” with repayment in 2022. The Department of Education said this step, which offers them some benefits, would eliminate the harmful effects of default and of federal student loan defaults and allow people to access repayment plans.
The on-ramp program and the Fresh Start program both end at the end of September. It’s unclear how long it will be before someone’s Social Security checks are garnished for federal student loan debt.
However, the lawmakers behind the letter are calling on the Biden administration to exempt Social Security benefits from garnishment under the so-called Treasury offset program.
“As an increasing number of older Americans have federal student loan debt as they approach or enter retirement age, we are concerned that these older borrowers are disproportionately subject to TOP collection,” the letter states.
Many seniors rely on Social Security to pay bills, and garnishing benefits can equate to the loss of hundreds of dollars in monthly income.
Lawmakers note that 3.5 million people age 60 and older have student loan debt. To be clear, this is not the number of people who could be at risk of foreclosure – only the subset of defaulting borrowers is potentially vulnerable. In 2015, about 114,000 borrowers offset Social Security checks to repay defaulted student loan debt, according to a Government Accountability Office report, and about half of those people were receiving disability benefits (not retirement benefits).
But the risk remains, and Democrats are pushing to stop it. They requested a briefing on the issue by April 3.
More from Money:
Is it worth having long-term care insurance?
Pension is broken: Is a ‘pension renaissance’ coming to save us?
The Social Security COLA estimate for 2025 just increased thanks to inflation