Student Loans and Social Security Benefits

A recent Wall Street Journal article details the plight of many American senior citizens whose Social Security benefits are being reduced on a monthly basis in order to pay back federal student loans. This situation, which is more common than you might think, is causing thousands of elderly individuals to live with an income that falls below the poverty line. Most baby boomers are entering retirement with student loans that they used to finance their own educations, but some have loans that they used to finance their children’s educations. All told, there are about seven million Americans over the age of 50 who owed $205 billion in federal student loan debt. One in three of these individuals are in default on their debts, a number that is likely to increase as more baby boomers retire from the workforce.

As a general rule, seniors who defaulted on their federal student loans have held their loans, which stemmed from their own education, for decades and were subject to an offset or garnishment of the maximum of 15% of their social security benefits. Most of these individuals owe less than $10,000 on their student loans. The offset amounted to about $140 per month. More than half of these individuals were receiving disability rather than retirement benefits. However, about half of these individuals were either able to pay off their loans or obtain cancellation of their debt as a result of the total and permanent disability (TPD) process. Nonetheless, there are annual certification requirements necessary to remain in the TPD process, and if the borrower fails to do so, he or she runs the risk of having the loan reinstated and social security offsets resume.

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