For millions of older Americans relying on an embattled Social Security system to cover their bills, another financial gut punch may be on the way — and it’s coming from their own student debt.
Under a Trump administration move to resume collections on federal student loans, borrowers in default could soon see their Social Security benefits docked by as much as 15%, higher education expert Mark Kantrowitz told CNBC.
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That means retirees already living on fixed incomes could lose a big chunk of their monthly checks with little warning.
And for the hundreds of thousands of borrowers 62 and older who have defaulted student loans — it could be an unhappy surprise in the mail.
Why your benefits could be garnished
The government has long had the power to claw back a portion of Social Security benefits to repay defaulted federal student loans. But those collections were paused during the COVID-19 pandemic. The pause was extended under the Biden administration, but President Trump has restarted the clock.
The Department of Education recently announced the administration will resume involuntary collections as early as June, meaning borrowers in default could once again be subject to wage garnishments, tax refund seizures and offsets to Social Security checks.
And there’s a big population at risk. Recent federal data shows that nearly 3 million people over the age of 62 hold federal student loans. The Consumer Financial Protection Bureau says more than 450,000 borrowers in that age group have defaulted on their federal student loans while receiving Social Security benefits.
Many of these borrowers are parents who co-signed loans or took out Parent PLUS loans for their children and fell behind after job losses, medical expenses or other financial shocks, according to the National Consumer Law Center.
“Borrowers who receive these notices should not panic,” Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program, told CNBC. “They should reach out for help as soon as possible.”
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What you need to know about the Social Security offset
If you’re in default, the federal government can withhold up to 15% of your monthly Social Security benefit without your permission. The offset kicks in automatically, unless you act to stop it.
If you get such a notice, it’s important to know your entire benefit won’t be wiped out.
Federal law protects the first $750 per month of Social Security income from garnishment. But for seniors already scraping by, even a small deduction can have a devastating impact.
How to fight back, or at least prepare
The worst thing you can do is ignore the problem. If you’re in default or nearing default, there are steps you can take now to reduce the risk of garnishment.
First, you may be able to request a hearing or file a request to stop or reduce the offset. If you’re facing medical issues, supporting dependents or already living below the poverty line, you can submit documentation proving financial hardship to the Treasury Department or its debt collection agency.
Second, consider reentering good standing through loan rehabilitation or consolidation. These programs allow borrowers to make a series of small payments to bring their loans out of default.
Once you’re out, you’re no longer at risk for Social Security offsets, but you have to act quickly. Loan rehabilitation typically requires nine monthly payments, and the process can take several months.
Other options for retirement
If you’re still working and planning to retire soon, Trump’s repayment effort should be a wake-up call. Retiring while in student loan default is now risker than ever.
For some, it may make sense to delay retirement until the loan is resolved, especially if garnishment would push you below your living threshold.
You might also need to rethink your savings strategy. If your retirement income plan was built around a full Social Security check, it’s time to reassess. You may need to increase 401(k) or IRA contributions, trim expenses or explore additional income sources to make up the shortfall if garnishment kicks in.
And for those still in the workforce with aging loans, now is the time to check your status. Are your loans in good standing? Are you on an income-driven repayment plan?
The answers to those questions could make or break your retirement security.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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