Handfuls of Americans are at risk of losing their Social Security benefits as student debt chases them into their golden years, according to a report by the Schwartz Center for Economic Policy Analysis at the New School, about 2.2 million U.S. citizens over the age of 55 still have outstanding student loans, and yes, of course if their loans fall into default, their Social Security retirement benefits may be affected and reduced.
Older Americans already account for the highest proportion of student loan borrowers, at 43 percent, according to the report. Currently, the Social Security Administration garners Social Security benefits to some extent if seniors have not repaid their federal loans.
The New Lifeline: Biden’s Income-Based Repayment Plans
Experts say that because of this situation, Americans should avoid falling into default at all costs. Fortunately, for borrowers, there are some student debt resources available that did not exist decades ago.
In the Biden administration, an approval was made on the income-based repayment plan SAVE, which allows long-time borrowers to be able to make small monthly payments or even full forgiveness of their debt.
“The sad thing about this situation is that although Social Security benefits are at risk, the reality is that this problem is completely avoidable,” said Michael Lux, an attorney and founder of Student Loan Sherpa. “Borrowers living on Social Security can often qualify for $0 per month student loan payments. These $0 payments can continue indefinitely and eventually qualify for student loan forgiveness.”
However, the problem for many older American borrowers is the number of obstacles they have to overcome to access lower payments or full forgiveness, Lux added.
“I encourage any senior with federal student loans to research income-based repayment options, specifically the SAVE program,” Lux said. “It’s a great tool to ensure that student debt doesn’t destroy your retirement. Those with Parent PLUS loans can even sign up for SAVE if they take advantage of the double consolidation loophole.”
Challenges in Accessing Forgiveness Programs
Currently, the federal government can garnish up to 15 percent of a borrower’s Social Security benefits in the event of default, and the average delinquent borrower has $2,500 of their Social Security income taken away per year, which can decrease their overall quality of life such as food, housing, and medical care.
“If you find yourself in this situation, don’t panic,” said Michael Ryan, a finance expert and founder of michaelryanmoney.com “. “You can avoid or stop the foreclosure by taking your loans out of default status.”
Ryan also encouraged Americans to consider income-based repayment plans, but anticipates that Social Security garnishment will become more common in the coming years.
“More and more Americans are retiring with student debt,” Ryan said. “The Biden administration’s proposed debt relief plan might help, but it’s not a complete solution.”
