Social Security Update—Proposed Change Would Protect Student Loan Borrowers

A new proposal from Senator Bernie Sanders could shield millions of older Americans and people with disabilities from having their Social Security benefits reduced because of unpaid federal student loans.

The newly proposed legislation, called the Stop Social Security Garnishment Act, would prohibit the federal government from garnishing Social Security payments to collect defaulted student loan debt.

The bill is expected to be formally introduced when the Senate returns next month and has already been backed by Senators Elizabeth Warren and Ed Markey.

“As a result of Trump’s disastrous cuts to education, an increasing number of seniors are in danger of having their Social Security checks garnished to pay back student loans they took out decades ago. That is beyond unacceptable,” Sanders said in a statement.

“In the richest country in the history of the world, no senior should have their Social Security payments taken away from them to pay back student debt. This is especially true when seniors throughout the country already cannot afford the skyrocketing price of healthcare, prescription drugs, groceries and housing. Congress must pass this legislation.”

Roughly 9 million to 9.5 million borrowers are currently in default on federal student loans.

And while student loan debt is often associated with younger borrowers, millions of older Americans also carry education debt, either from their own schooling or from loans taken out to help children and grandchildren attend college.

According to a fact sheet released by Bernie Sanders' office, more than 3 million Americans over age 62 carry student loan debt. And more than one-third of Social Security recipients with student loans rely on those payments to meet basic living expenses.

Garnishing Social Security benefits can create hardship, especially for older borrowers living on fixed incomes. And according to Sanders’ office, half of Social Security beneficiaries whose benefits were garnished because of defaulted student loans have reported skipping medical care or prescriptions because of cost.

The proposal would generally amend existing law that currently permits the government to recover defaulted student loan debt through offsets of federal benefits.

Under current rules, the government can garnish up to 15 percent of a monthly Social Security payment to collect defaulted federal student loans.

“Sanders’ proposal draws an important line between requiring borrowers to repay student debt and taking away the Social Security benefits older and disabled Americans may depend on for everyday essential costs,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.

“For affected borrowers, ending Social Security garnishment would provide at least some kind of financial protection without actually forgiving their loans.”

The bill comes as the Trump administration has temporarily paused certain involuntary collection activities against federal student loan borrowers.

In June of last year, the administration said that it would not cut Social Security benefits for affected borrowers, reversing an earlier plan to resume collections following pandemic-era relief measures. And the Department of Education later delayed wage garnishment and other involuntary collections while implementing new repayment options.

However, the pause is not necessarily permanent, and a future administration or policy change could resume Social Security offsets unless Congress voted to protect against this.

Some have their reservations about the proposal as a matter of fiscal policy, though.

“Sanders has a point when he states that we are the richest country in the world, and this should not be an issue up for debate. However, as U.S. debt approaches $40 trillion and GDP slows, how much, if anything, can we simply afford to write down?” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.

“As for many elderly individuals with student loans, I do believe Social Security should be a protected asset, much like ERISA plans are protected from creditors.”

“The debt would still remain, and the government could still pursue other lawful collection methods, but beneficiaries would have their monthly benefits protected,” Beene said.

“The bigger question is if the focus narrows to collecting smaller amounts for repayment, at one point does that time and effort involved in recovering those funds not worth the expense involved to do so? While the odds of outright forgiveness are small, there could be a middle ground reached of providing relief from garnishment and a more moderate repayment plan.”

The bill has not yet been formally introduced and would need approval from both chambers of Congress before reaching the president's desk.

“For some borrowers, this will be a much-needed reprieve, as they can receive their full Social Security benefits absent a reduction,” Thompson said.

However, its prospects remain uncertain given Republican control of Congress and ongoing disagreements over student loan policy. Regardless of its passage, the student loan and education system could be approaching a major transition, experts say.

“I do believe the system will look drastically different moving forward, with lower loan amounts and more emphasis placed on degree plans tied to in-demand jobs,” Thompson said.