The typical struggling student loan borrower is often a 20-something weighed down by six-figure debts as he or she looks to start a budding career and adult financial life. But a new report adds to the growing body of evidence that student debt is so widespread that it’s now a challenge faced by Americans of all types.
About 114,000 student loan borrowers over 50-years-old are losing out on a portion of their Social Security benefits because of an old student loan and the number of borrowers over age 65 facing this predicament has increased 540% over the last decade, according to a report released Tuesday by the Government Accountability Office, the nonpartisan investigative arm of Congress. The government provides federal student loan borrowers with a variety of options to avoid defaulting on their loans, but once a borrower defaults the feds have access to incredible powers to collect on the debt, including garnishing Social Security benefits, wages and tax refunds.
More than 70% of the $1.1 billion collected through Social Security benefits to pay off student loans only applied to fees and interest —meaning that those funds likely barely made a dent toward paying back the borrower’s debt.
The dramatic increase in older borrowers facing these collection tactics is likely due in large part to the growth in older Americans carrying student loan debt; the number of borrowers over 64-years-old increased 385% since 2005, compared with an increase of 62% for borrowers between ages 25 and 49. About three-quarters of older borrowers had taken on loans for their own education — not their children’s — and those who are carrying debt on behalf of their kids were less likely to default, the GAO found.
The report indicates that often collections on student loans are increasingly pushing seniors closer to the financial edge. The government has to leave borrowers with a minimum of $750 in Social Security benefits, but that floor was created in 1996 and hasn’t been adjusted for changes in cost of living. In 2016, the poverty threshold for a single adult was $990. About 67,300 borrowers have had their benefits garnished below the poverty line, compared with 8,300 in 2004.
“This report demonstrates just how draconian these Social Security offsets are and how there seems to be a failure at all sorts of levels of this policy,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, a nonprofit group based in Boston, Mass.
Seniors are increasingly pushed toward poverty because of old student debts.
More than 70% of the $1.1 billion collected through Social Security benefits to pay off student loans only applied to fees and interest — meaning that those funds likely barely made a dent toward paying back the borrower’s debt. More than 50% of borrowers at least 50-years-old who are losing out on Social Security benefits had no portion of that offset applied to their principal. More than one-third of borrowers facing Social Security garnishments over their loans were still in default five years after the government began offsetting their Social Security and some even saw their loan balances increase over the offset period, the GAO found. Despite having their Social Security benefits taken away to theoretically cover their student debt, about 13% of borrowers who were at least 50-years-old when the garnishing began died with a portion of their loans still unpaid, the report found. (Federal student loan debt is automatically canceled and the debt is discharged when a person dies.)
Sen. Elizabeth Warren (D-Mass.), who requested the report from the GAO along with Sen. Claire McCaskill (D-Mo.) called the tactics described in the report, “predatory and counterproductive” in a statement. “The hard-earned Social Security checks that are the sole source of income for millions of seniors should not be siphoned off to pay interest and fees on student loan debt,” she said. “It’s no wonder many Americans don’t think Washington works for them: our government is shoving tens of thousands of seniors and people with disabilities into poverty through garnishment every year — and charging them $15 every month for the privilege — just so that the Department of Education can collect a little bit more interest and keep boosting the government’s student loan profits.”
In many cases, this fate is likely avoidable, but borrowers may not be receiving the information necessary to take action, Yu said. The Department of Education offers borrowers the opportunity to use repayment programs to make student debt more manageable by making payments capped at a certain percentage of their income. But servicers, the private companies hired by the government to collect student loan payments, often don’t do enough to educate borrowers about their options, consumer advocates have warned. In many cases the first time an elderly borrower hears about their student loan in decades is when they’re applying for Social Security, Yu said. That’s despite that about 43% of borrowers facing offset for the first time have had their loans for 20 years or more, the GAO report found.
The Department of Education didn’t immediately respond to a request for comment on the report, but the agency has expressed concern about the plight of borrowers faced with losing their Social Security retirement and disability benefits over unpaid student loans. The agency has recommended that Congress increase the minimum amount of Social Security benefits borrowers are entitled to keep.
In addition, the report notes that Department identified borrowers who were having their disability benefits offset and who would qualify for a total and permanent disability discharge — a provision that allows borrowers to have their loans wiped away if they’re permanently unable to work — and alerting the borrowers that they qualified. The agency also halted garnishment of Social Security disability benefits for borrowers with a condition where medical improvement wasn’t expected. Once these borrowers reach the age to claim Social Security retirement benefits offsets will begin again unless the borrower is approved for a total and permanent disability discharge.
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