155,000 Americans Had Social Security Benefits Cut in 2013 Because of Student Debt – Real Time Economics

The U.S. government is increasingly garnishing the Social Security checks of older and disabled Americans who have fallen behind on their student-loan payments.

Some 155,000 Americans had their Social Security benefits reduced in the federal fiscal year 2013 after defaulting on federal student loans, according to a report Wednesday from the Government Accountability Office, a research arm of Congress. The figure has steadily risen each year since 2002, when 31,000 Americans had retirement, disability and survivor benefits cut because of student debt.

The report, released in advance of a hearing Wednesday before the Senate Special Committee on Aging, says most of the Americans affected are above 50 years old, and a rising share are age 65 and older. Last year, 36,000 Americans age 65 and older had benefits cut.

A vast majority of all those with benefits garnished—71%–were receiving disability income, the GAO reported. Adults of any age are eligible to receive Social Security disability payments.

Sandy Baum, a senior fellow at the Urban Institute, a Washington, D.C., think tank, questioned the government going after people who have demonstrated they lack the ability to work.

“It just doesn’t really make any sense” to go after disabled Americans, Ms. Baum said. “We should not try to get the money from them and should focus on people who actually have earnings.”

The Education Department is the nation’s primary lender to students and holds roughly 90% of student debt, which now stands at about $1.1 trillion.

Under federal law, student debt can’t be discharged in bankruptcy, except in very rare circumstances. The government employs private contractors to collect debt when borrowers fall behind. Federal officials have said their methods, including cutting benefits, are designed to protect taxpayer dollars.

Federal student loans are easy to obtain because they require no credit check. Having no penalties when borrowers don’t pay could drive up taxpayer costs and encourage more borrowers to walk away from their debt, Ms. Baum said. But she said the government should consider forgiving the debt held by those who clearly can’t work.

The number of Americans with benefits garnished is only a small share of older borrowers. GAO, citing data from the New York Federal Reserve Bank, said the number of Americans 50 and older with student debt stood at 6.9 million in 2012, up from 3 million in 2005. It pointed to an Urban Institute study showing that among borrowers age 65 and older, the typical debt load was $21,200 in 2010.

Wednesday’s report showed that older Americans have the highest default rates. More than half of the 260,000 loans held by Americans age 75 and older were in default in 2013.

Nearly a fifth –19%–of student loans held by those ages 50 to 64 were in default. That compared to a 12% default rate for borrowers ages 25 to 49 and a 3% rate for those younger than 25.

Most of the debt held by older Americans reflects loans they borrowed for their own educations instead of for their children’s or grandchildren’s, the report showed.  Only 27% of student-loan balances held by Americans ages 50 to 64 was for their children. The rest was for their own educations. Among borrowers ages 65 to 74, 82% of student debt was for their own educations.




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10 September 2014 | 10:17 pm – Source: blogs.wsj.com

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