Tuesday, December 27, 2016

Social Security offsets imposed on elderly student-loan defaulters: Heartless and Pointless

You can be young without money but you can't be old without it.
Tennessee Williams

If you are in your late 50s or early 60s, you've probably obtained an estimate for how much Social Security income you will receive when you retire. Most retired Americans depend on their Social Security checks to provide a significant amount of their overall retirement income. 

But if you defaulted on a student loan, you may not receive your full Social Security benefit. The government may deduct part of your Social Security income and apply the deduction to your unpaid student loans. 

A few weeks ago, the U.S. Government Accountability Office issued a lengthy report  (82  pages) on the government's Social Security offset activities. Here are some of the highlights.
  • In 2015, 173,000 Americans had their Social Security income offset due to defaulted student loans. This is a dramatic increase from 2002, when the government only applied offsets to 36,000 Social Security recipients (page 11).
  • Some Social Security recipients whose income was offset lived below the federal poverty guideline and others dropped below the poverty level after their Social Security checks were reduced (p. 27). In fact, as Senator Elizabeth Warren emphasized in a recent press release, "Since 2004, the number of seniors whose Social security benefits have been garnished below the poverty line increased from 8,300 to 67,300."
  • More than 7 million people age 50 and older still owe on student loans, and 870,000 people age 65 and older have student loan debt. Among student-loan borrowers age 65 and older, 37 percent are in default (figure 2, page 10).
  • The amount of money the government collects from Social Security offsets is small beer. The government  only collected $171 million from Social Security offsets in 2015, about one eighth the amount Hillary Clinton raised for her 2016 presidential campaign ($1.4 billion). 
  • Most of the money collected from Social Security offsets went toward paying fees and accumulated interest.  "Of the approximately $1.1 billion collected through Social Security offsets from fiscal year 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest" (p. 19).
GAO also reported that several hundred thousand people who have experienced Social Security offsets are totally disabled and entitled to have their student loans forgiven, but only a minority of these people have applied for loan forgiveness (p. 31). Commendably, DOE has suspended offsets for people who are totally disabled whether or not they applied for loan forgiveness.  Unfortunately, the government treats the amount of the forgiven debt as taxable income (p. 31).

The GAO report is packed with additional information and findings, but the bottom line is this: The government is hectoring elderly and disabled student-loan defaulters even though the amount of money the government collects is a pittance. Most of the money collected goes toward paying down fees and accumulated interest and does not reduce the individual defaulters' loan balances.

In short, the Department of Education's Social Security offset practices is pointless. Elderly or disabled people who defaulted on their student loans and are surviving on their Social Security checks will never pay off their loans. 

Sandy Baum, a widely renowned expert on student loans, recommended in her recent book that the government stop offsetting the Social Security checks of defaulted student-loan debtors. Does anyone disagree? 

In fact, the government's Social Security offset practices strike me as an administrative form of sadism--the bureaucratic equivalent of small children who joylessly tear the wings off of insects.

Senator Elizabeth Warren has called for an end to the practice of garnishing student-loan defaulters' Social Security checks. Surely she can gather legislative support for a law that bans this practice. If she can't get that done, then Senator Warren is really not much of a consumer advocate.


Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).


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  9. The imposition of Social Security offsets on elderly student-loan defaulters is not only heartless but also appears to be a misguided and counterproductive approach. Penalizing individuals who may already be grappling with financial challenges in their later years seems to lack empathy for the complex circumstances surrounding student loan debt. Rather than addressing the root causes of widespread student loan issues, such punitive measures disproportionately affect vulnerable populations. A more compassionate and effective solution would involve comprehensive reforms in student loan policies, emphasizing fair repayment plans and debt forgiveness initiatives, especially for those facing financial hardship in their retirement years. The current approach of imposing Social Security offsets appears not only heartless but also fails to address the underlying systemic issues contributing to the student loan crisis.
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