October is an important month for anyone with outstanding federal student loans. After repayments were paused for two and a half years, they’ll resume this month.
This is an issue that even many older Americans will have to deal with. But they could get some help that younger borrowers won’t. Are you retired and still owe on student loans? One new bill could protect your Social Security wages from being garnished.
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An effort to shield Social Security benefits
Last week, a group of legislators, including U.S. Representatives John Larson (D-Conn.) and Raul Grijalva (D-Ariz.), reintroduced the Protection of Social Security Benefits Restoration Act. Senator Ron Wyden (D-Ore.), who serves as chairman of the Senate Finance Committee, introduced a companion bill in the U.S. Senate.
The primary purpose of this bill is to prevent the federal government from garnishing Social Security benefits for repaying any type of non-tax-related federal debt, notably including student loans. The proposed legislation would also protect railroad retirement pensions and benefits for coal miners disabled by black lung disease from being garnished.
Rep. Grijalva said in a public release announcing the bill, “With student loan debt payments resuming in October, it’s critical that we act now to protect the benefits seniors need to retire and live their lives with dignity.” Sen. Wyden stated, “It is plain wrong to take away the Social Security benefits seniors earned through a [lifetime] of work because of the increasing burden of student loan debt.”
Such garnishments can exact a heavy financial toll. A report released earlier this year by Boston College’s Center for Retirement Research used 2019 data to determine that the average reduction in annual Social Security benefits due to garnishments related to student loans was close to $2,500. That translates to between 4% and 6% of average household income.
How many people could be helped by this bill?
Most federal student loan debt is held by individuals in their twenties, thirties, and early forties. However, there are more people in their later years who still owe money on student loans than you might think.
The number of student loan borrowers ages 60 and older has increased by 6 times since 2004 to around 3.5 million. These older Americans have a combined student debt of over $125 billion. Most of them have federal student loans (close to 84% based on a 2019 federal government survey).
The prospects of garnishment of their Social Security benefits could be problematic for many of these older borrowers. A survey conducted by AARP in 2018 found that 9% of baby boomers with student loan debt prevented or delayed them from obtaining needed healthcare. The Federal Reserve’s 2022 Survey of Household Economics and Decisionmaking revealed that 61% of borrowers with student loans ages 55 and up don’t have enough extra money to cover expenses for three months.
Third time’s the charm?
Retirees with federal student debt probably shouldn’t set their hopes too high on receiving assistance from the Protection of Social Security Benefits Restoration Act. The bill has been introduced to Congress two other times in recent years, first in 2019 and again in 2021. It failed to gain traction both times.
It’s possible that the third time will be the charm. However, if not, older Americans who have outstanding federal student loans might want to consider pursuing other options. For example, the Fresh Start program can temporarily prevent Social Security benefits (and other wages) from being garnished for borrowers who have defaulted on their federal student loans. Also, the Biden administration’s Saving on a Valuable Education (SAVE) plan could help older individuals significantly reduce their monthly loan payments.
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