2 Biggest Social Security Risks To Be Aware of if You Have Student Loan Debt
Falling behind on your student loan debt can lead to significant financial consequences, including losing Social Security money.
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If you’re behind on debt, a debt collector can sue you and win a judgment against you for the amount owed. The debt collector can get a court order that tells your bank or credit union to turn the money over from your account, according to the Consumer Financial Protection Bureau. Under current law, the federal government (the debt collector) can take Social Security retirement and disability benefits.
Democratic lawmakers, including Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.), recently sent a letter to the President Joe Biden administration calling for the exemption of Social Security benefits from garnishment under the Treasury Offset Program.
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“When borrowers are in collections, on average their Social Security benefits are estimated to be reduced by $2,500 annually,” the lawmakers wrote, as reported by CNBC. “This can be a devastating blow to those who rely on Social Security as their primary source of income.”
Under the Debt Collection Improvement Act, the government can garnish up to 15% of your Social Security payments if you default on your federal student loans. But they are not entitled to the first $750 of your monthly payment.
For example, if you receive a monthly Social Security check for $1,300, the government can take up to $195 from each payment. This results in a lower benefit amount, which can push beneficiaries into poverty.
After the pause of student loan payments expired in October 2023, the U.S. Department of Education said it would resume collection practices in 12 months. However, lawmakers are concerned that borrowers will face extreme consequences, CNBC reported. They asked the Biden administration to provide a briefing on its efforts to address the issue by April 3.
A source told CNBC that the government’s collection practices with student loan borrowers, including garnishing wages and Social Security benefits, are under review.
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This article originally appeared on GOBankingRates.com: 2 Biggest Social Security Risks To Be Aware of if You Have Student Loan Debt
