Millions of Americans who rely on Social Security could see some of their monthly benefits confiscated starting in June if they fail to pay their student loan debt, various American media reported this week. This process affects those with outstanding debts to the federal government, according to official data.
Approximately 2.9 million Americans age 62 and older have federal student loan debt, a figure that has increased by more than 70% since 2017, according to the U.S. Department of Education. This statistic reflects the growing number of older Americans with student debt.
Trump resumed debt collections: retirees in the spotlight
The Trump administration has resumed aggressive collection measures that were suspended during the COVID-19 pandemic and under Joe Biden’s administration. These measures seek to recover funds from borrowers who have defaulted on their student loan repayment obligations.
Through a process known as the Treasury Offset Program (TOP), the federal government can offset up to 15% of your Social Security benefits to pay off defaulted federal student loans, but it can’t reduce your monthly check to less than $750.
Before offsetting begins, a notice of intent to offset is sent to the borrower’s last known address informing them that offsetting and negative credit reporting will begin within 65 days, explains the Federal Student Aid website. “The notice can only be sent once, and offsets will continue until you pay your debt or the default is resolved.”
The Treasury Offset Program (TOP) operates as a federal mechanism to withhold payments, including Social Security, and allocate them to pay outstanding debts. This system is designed to ensure the recovery of government funds.
When do clawbacks for indebted retirees begin?
As of May 5, the White House resumed these Treasury relief measures for delinquent borrowers, including the automatic garnishment of Social Security payments. These measures affect those who have not rectified their financial situation.
These debt collection practices aren’t new and have been used for more than two decades, Tom O’Hare, a holistic college counselor at Get College Going, explained to Newsweek. The system has long been part of federal policy.
“They were suspended to help delinquent borrowers during the COVID-19 pandemic and throughout the remainder of the previous administration,” O’Hare said. The pause was intended to ease the financial pressure on borrowers during that period.
“A borrower who hasn’t repaid their federal student loan is considered in default when the loan reaches 270 days past due,” explained Tom O’Hare. This period triggers the initiation of stricter collection actions, which can lead to actions as extreme as judicial collections in the most critical cases.
The loan is typically reassigned from the loan servicers to a collection agency that works on behalf of the federal government to litigate or implement rigorous recovery practices, including wage garnishment and Social Security deductions, the expert added.
Collections resumed on May 5, and the seizures could begin affecting June benefit payments. The Department of Education has not indicated whether it will review the process or issue a new round of warnings to borrowers.
Federal student loans are government-provided financing for post-secondary education, and defaulting on them triggers measures such as the Treasury Offset Program (TOP). This program ensures the recovery of overdue debts.
