The face of student loan debt in most minds is a young one — someone in his 20s or 30s struggling to balance the repayment of thousands of dollars in loans with beginning a career, finding a home, and starting a family.
But according to a new report released by the Government Accountability Office (GAO) — a nonpartisan agency providing auditing and investigative services for the federal government — the struggle to repay tuition debt has a new face: those of the thousands of Americans age 50 and older who lose a portion of their Social Security benefits to garnishment.
The amount of American seniors entering retirement with student loan debt has increased dramatically, with the Federal Reserve Bank of New York reporting people over the age of 60 have the fastest growing student loan balances of any age group in the past ten years.
And to date, the IRS has seized around $1.1 billion in garnishd Social Security benefits since 2001 to collect on this debt. In 2015 alone, the government collected $171 million from the Social Security checks of 114,000 Americans over age 50 to cover outstanding student loan balances.
Under current law, the government may levy up to a maximum reduction of 15% on a beneficiary’s monthly payment to reimburse federal loans in default (provided it doesn’t reduce a beneficiary’s payment to less than $750 per month or $9,000 per year).
But for 67,000 of those beneficiaries — most of whom received Social Security disability benefits already falling below federal poverty guidelines — the burden of unpaid student loans has lowered payments even more.
Despite a maximum reduction threshold, an average of $140 per month was garnished from beneficiaries in 2015. Though benefits may not be reduced to less than $9,000 per year, current federal guidelines place the poverty threshold at $11,880 — meaning garnishments can still place retirees $2,880 below the poverty line.This is because the maximum reduction thresholds in use today were established by the Debt Collection Improvement Act of 1996 — at a time when the poverty level was set at $7,740 per year (or $645 per month). These thresholds have never been altered to reflect changes in cost-of-living.
To make matters worse, student loan debt can’t be discharged in bankruptcy proceedings, and the GAO reports that as much as 70% of the money collected by garnishing Social Security checks goes toward interest and other fees — not the principal.
In fact, the United States Treasury charges a $15 per month processing fee to garnish benefits, prompting lawmakers like Senator Elizabeth Warren (D-MA) to call our current system of collecting debt on Social Security benefits “predatory and counterproductive.”
Senator Warren, along with Senator Claire McCaskill (D-MO), are working with the GAO to design and promote legislation that puts an end to benefit garnishment pushing Americans into poverty. Senator McCaskill plans to propose legislation in the near future that will prevent any garnishment of benefits that drops payments below the current poverty threshold.
Additionally, the GAO is calling on Congress to adjust the maximum reduction amount to accurately reflect cost-of-living.
But until changes are made, the alarming trend of disabled and retired Americans facing garnishment — and impoverishment — due to outstanding student loans is showing no signs of slowing.
In 2015, seven million Americans over the age of 50 owed approximately $205 billion in federal student loans — and 1 in 3 of those Americans were in default.
And with Americans under 50 currently holding as much as $1.3 trillion in student debt, we can expect benefit garnishment to increase significantly in the coming years and garnishment reform to become an important topic in the new administration.