A growing number of older Americans have student loan debt as they near or enter retirement. Compared to younger borrowers, borrowers age 50 and older have considerably higher rates of default on federal student loans. For those who are in default on their student loans, this debt is generally not discharged in bankruptcy, and their Social Security benefits may be reduced to repay this debt.
Under the Treasury Offset Program, the Departments of Education and Treasury coordinate to withhold a portion of an individual’s Social Security retirement or disability benefit to pay off their outstanding federal student loan debt—a process known as administrative offset.
As a matter of fact, 114,000 student loan borrowers over 50-years-old are now losing a portion of their Social Security benefits because of an old student loan, according to the Government Accountability Office. Furthermore, the number of borrowers over age 65 facing this predicament has increased 540% over the last decade.
While the loan is active, the government provides federal student loan borrowers with a variety of options to avoid defaulting on their loans. However, once a borrower defaults, Uncle Sam has incredible powers to collect on the debt, including garnishing Social Security benefits. To make matters worse, this past due debt is so high now that more than 70% of the $1.1 billion collected through Social Security benefits is only applied to fees and interest on those student loans, leaving the principle forever due.
As May approaches and families get all excited about picking their dream college, they also need to be aware of their out-of-pocket cost; especially if they have to borrow money to attend that dream college. You can’t bankrupt loans for education… period. Therefore, before families sign on the bottom line of the admissions application, they should take the time to discuss the process of college planning with a CCPS®). As Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.”
Here’s the report released by the Government Accountability Office
Here’s a report on how to make the student loan borrowing system better for borrowers released by the Department of Education