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Can Social Security payments be garnished if you default on student loans? Unfortunately, the answer is yes, as many retired borrowers found out the hard way.
More people than ever are losing out on Social Security payments due to federal student loan debt.
Read on to learn about the long-reaching effects of student loan default, and what you can do today to protect your future finances.
Can student loan debt threaten your Social Security payments?
If you default on federal student loans, the government can take extreme measures to get your money. The government can tell your employer to withhold your pay. The IRS can also scoop up your federal and state tax refund and put it toward unpaid loans.
If you’re nearing retirement, the government can garnish your Social Security benefits. This consequence has been affecting more and more borrowers over the years, including those with student loans over 20 years old. Many retired Americans rely entirely on Social Security payments. With garnished benefits, they may not have enough money each month to live.
The good news? There is a Social Security garnishment limit. The bad news? It currently falls below the poverty line.
What’s the Social Security garnishment limit?
With the Debt Collection Improvement Act of 1996, the government set a Social Security garnishment limit. It can’t take any more than 15 percent of your Social Security payments.
This limit doesn’t give people enough protection. The last time it was adjusted was in 1998; the cost of living has increased since then, and the poverty line has gone up. Today, the poverty threshold for one adult is $990 per month. However, the government can whittle your Social Security benefits down to $750. With these reduced Social Security payments, older Americans with no other revenue streams have to subsist off an income $240 below the national poverty line.
Another piece of bad news — most of the money carved from Social Security payments doesn’t even pay down the loan principal. Of the $1.1 billion garnished from benefits, about 71 percent went to fees and interest.
This reality is pretty bleak, especially considering how many Americans are carrying student loan debt these days.
How many Americans had their Social Security payments garnished?
According to a December 2016 report by the Government Accountability Office (GAO):
- Around 114,000 borrowers aged 50 and older had their Social Security payments garnished in 2015.
- The population of people aged 50 to 64 in this situation has increased by 407 percent since 2002.
- The population of borrowers aged 65 and older facing Social Security garnishment has increased by 540 percent.
Student loan debt isn’t just a crisis for twenty-somethings; it affects people of all ages.
All of this is pretty scary news, but there are some rays of hope.
What can people do to save their Social Security payments?
When it comes to defaulting on student loans, people need to know their rights. For instance, older Americans on permanent disability may be eligible for a full discharge of their student loans. Borrowers with a long-term medical condition can also qualify for full Social Security payments.
Hopefully, the GAO’s report will convince the Department of Education to provide more information to borrowers about their rights and options. The GAO also encouraged the Department of Education to set a Social Security garnishment limit higher than the national poverty line.
What can you do to avoid student loan default?
Federal loans never go away, and the government has wide-reaching powers to collect. When you fail to make a student loan payment for 270 days, then your loan is considered to be in default. To get out of default, you need to catch up on payments.
You may need to enter a rehabilitation program with the Department of Education. With a rehab program, you should be able to set up an income-based plan with manageable payments.
Once you’ve made several on-time payments, you may qualify to consolidate your student loans. Student loan consolidation can simplify your monthly payments while saving you money.
Student loans and Social Security payments: the bottom line
As we move into 2017, Americans owe nearly $1.3 trillion in student loan debt. Of those 44 million borrowers, some are moving into retirement and hoping to rely on Social Security payments to live. Unfortunately, outdated policies set the Social Security garnishment limit below the poverty limit.
To protect yourself, you should do everything you can now to avoid student loan default. The choices you make today will help you in years to come.
If your financial situation feels impossible, check out this article to see whether you can discharge your student loans through bankruptcy. Whatever your age and situation, there are options to help you manage your student loans and get out from under the shadow of debt.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|