Unpaid Student Loans Could Cost You Part of Your Social Security

Q: Can the government garnish social security benefits if I default on a federal student loan?

Are you racking up large federal student loan debt for your own education or for your children’s college educations? If so, your Social Security benefits could be in jeopardy if you fall behind in your loan payments.

Social Security Disability Insurance (“SSDI”) is government benefits paid to people under 65 with a qualifying physical or mental “disability” that “prevents them from engaging in substantial gainful activities and that has lasted, or is expected to last, for 12 months or more or result in death”. The recipient must also satisfy the minimum required work credits and must have paid into the Social Security system through taxes on their income for a number of years prior to becoming disabled. The amount such benefits is not based on financial need but rather on a formula that considers their average lifetime income prior to their disability.

Social Security retirement income benefits are also based on a formula which factors in a worker’s average lifetime income and the age they choose to retire from working and begin collecting their retirement benefits.  If the worker becomes disabled before retirement age and qualifies for SSDI benefits, those benefits are generally automatically converted to regular Social Security retirement benefits once they reach retirement age.

Both Social Security retirement benefits and Social Security disability insurance benefits can be subject to garnishment by the government if the beneficiary defaults on the repayment of a federal student loan. That includes loans for their own educations (often taken later in life and not paid-off before retirement or disability hits), as well as loans they took on to finance their children’s college educations.

The good news is that recipients of Social Security disability benefits may be eligible for student loan forgiveness–which would stop the garnishment of their Social Security benefits. The bad news is that garnishment of Social Security benefits to repay loans not subject to loan forgiveness is not as easy to get around.

If you are already receiving Social Security benefits but are having difficulty keeping up with student loan repayment obligations, you can consider the following actions to avoid garnishment of your Social Security benefits:

  • check on qualifications for a loan cancellation for disabled individuals;
  • pursue an income-based repayment plan with a lower monthly payment;
  • seek a forbearance which might buy you some time without payments;
  • explore a loan consolidation which can result in more manageable payments.

If you take no action, you increase the chances of your Social Security benefits being garnished. Once your loan remains unpaid for nine months, the government can start taking15% off your monthly benefits check– without having to take you to court first.

In addition to the defaulted loan negatively affecting your credit rating, the amount garnished is generally applied to interest and penalties rather than principal, so the student loan debt is not getting paid down quickly, if at all. Further, those whose Social Security benefits are their primary or sole income source often cannot afford any reduction in their monthly check. Garnishment of benefits can cause severe financial hardship to many and if it continues at its current rate, it’ll result in “hundreds of thousands of American seniors living in poverty”.

Once garnishment happens, you have two options. First, request a hearing within 30 days which can hold the garnishment off temporarily and gives you a chance to show why your check should not be garnished. Another option is to negotiate a loan rehabilitation agreement with your lender under which you pay an agreed-upon marginally-increased monthly amount for a certain period of time after which the garnishment eventually ends and the loan default gets removed from your credit report.

If you need assistance in the SSDI application or appeal process for benefits or have any questions regarding Social Security benefits, the Arizona disability attorneys at Roeschke Law, LLC are dedicated exclusively to SSDI and SSI disability law and can help you. Call 800-975-1866 for a free consultation. We represent clients in all cities and counties in Arizona.