Most conversations about the dangers of student debt rightfully focus on the young. But a surprising number of elderly Americans are also still paying back education loans. And today, the Government Accountability Office unveiled a rather depressing report about how the government may be driving some of those retirees into poverty in its attempts to collect on their debt.
The problem stems from the way Washington handles defaults. Once a borrower has failed to pay back his federal loan for 425 days, the government has the power to withhold Social Security retirement and disability payments to offset the debt. In 2013, the GAO reports that 155,000 Americans, including 36,000 individuals older than 65, saw their benefits garnished in this fashion.
Because Social Security is designed to keep the elderly and infirm from falling into destitution, Congress very sensibly limited how much money the Treasury Department could withhold from their benefits when collecting on a student loan. Much less sensibly, the cap wasn’t indexed for inflation and hasn’t been updated since the 1990s. As a result, the GAO reports that, "the current limits may result in monthly benefits below the poverty threshold for certain defaulted borrowers."
To translate that into the clearest terms possible: Due to Congress' neglect, our government is now probably pushing somebody's grandparents into poverty so that they can settle up a bad college debt.
How many people are we talking about here? The report’s numbers are slightly opaque, but it looks like about 129,000 Americans total, including 27,000 senior citizens, would have kept more of their Social Security payments if the withholding limits had kept pace with the poverty line.1 We don’t know for sure that every one of these individuals is being driven into poverty, since some of them may have income from other sources. But the fact that we even have to worry about the possibility is disturbing.
In the end, we’re only talking about a problem afflicting a relative handful of people. But that also means it would be fairly painless to fix. Fixing the withholding limits to make sure nobody’s benefit payments fell below the poverty level would have cost just $94 million in 2013. This does not seem like a hard trade-off to make.
Of course, the really humane thing would be to finally let Americans discharge their student loans in bankruptcy, so they aren’t dogged by their borrowing mistakes deep into old age. But baby steps first.
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1 Here’s the math. The GAO says 155,000 individuals had Social Security benefits garnished to offset a student debt in 2013. Of them, 83 percent (or about 129,000) would have received a higher benefit payment if the withholding limits kept pace with today’s poverty line. Of the 36,000 borrowers over 65 who had benefits withheld, 76 percent (or about 22,000) would have been eligible for higher benefits if the limits were updated.