Student Loan Debt and Social Security Garnishing: A New Twist on the Great Recession

Financial IQ

Student loans are near impossible to discharge in bankruptcy. While many people are aware that they can have their wages garnished to repay the loans, few are aware just how impactful this can be.

Case in point: the government is now garnishing Social Security checks from retirees at record levels.

How much does the government garnish?

The government can take as much as 15 percent of your disposable income when garnishing. A common issue with this policy is what the government perceives “disposable income” to mean.

To the government, income is disposable if it doesn’t go toward a mandatory deduction. So when you read “15 percent of disposable income,” just take out the “disposable” part.

For most seniors and others receiving Social Security benefits, the government can take a 15 percent bite out of their total Social Security benefit check. And that’s exactly what they’ve done to 115,000 retirees between the first of the year and August 6, 2012.

That’s nearly twice as many than were garnished in 2011 during the same time period. How much the government garnishes varies, but it can be as much as 15 percent, which is the legal limit for garnishments.

The average retiree’s check is $1,230 according to the Social Security Administration. This means that a check can be cut as much as $184.50 through garnishment — not exactly small change if all your only income is a Social Security check.

Far-reaching social consequences.

The worst part? In many cases, the student loans that are in default weren’t taken out for the beneficiary’s education. Rather, most of the garnishment cases are for student loans taken out to finance the education of someone else, usually a child or a grandchild.

While some seniors are paying for further education later in life and a select few still have undergraduate loans to pay off, consumer advocates are mostly seeing cases of people who wanted to help their kids or grandkids go to school.

Garnishment has far-reaching social consequences. It’s estimated that a little under half of all baby boomers won’t have enough saved to pay for basic expenses and uninsured health care coverage.

Keep in mind that the generation currently retiring, the Baby Boomers, are also known as “the Sandwich Generation,” due to the fact they often support both their parents and their children after college.

For its part, the Department of Education does offer borrowers the opportunity to make payment agreements.

In fact, it’s only after two years of nonpayment that the DoE starts looking into collections. If collections fail, garnishment is pursued.

The Department of the Treasury then attempts to resolve the problem before it begins garnishment (a court order is not required) and even then, they won’t garnish a check under $750.

What it means for the unemployed.

Of course, none of this solves the problem for people who are either terminally out of work or have no other income than their Social Security check.

The average duration of unemployment stood at 38.8 weeks as of July 20, 2012. According to the Bureau of Labor Statistics, long-term unemployment (more than 27 weeks) affected 5.2 million Americans, which is over 40 percent of the unemployed.

These statistics on unemployment do not include “discouraged workers” — those who have lost their unemployment benefits or simply stopped looking for work.

Garnishment is a new twist in a story that’s been running since the Great Recession began. The rising cost of education, increased reliance upon student loans and a general lack of good job prospects are creating a perfect economic storm for many Americans.

Nicholas Pell is a freelance writer based out of Hollywood, CA. He tries not to think about his student loans.



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