The Complex Interplay of Social Security Benefits and Student Loan Debt

The intersection of Social Security benefits and student loan debt presents a growing challenge for older Americans. As the cost of higher education continues to rise, an increasing number of individuals are carrying student loan debt into their retirement years. This can lead to a precarious financial situation, especially when Social Security benefits are garnished to repay defaulted loans. This article explores the complexities of this issue, examining the impact on borrowers, the available relief options, and the systemic factors contributing to the problem.

The Rising Student Loan Burden for Older Americans

Student loan debt among older people has grown at a staggering rate. People 60 and older hold an estimated $125 billion in student loans, according to the National Consumer Law Center, a sixfold increase from 20 years ago. As of the second quarter of 2024, Americans owed $1.6 trillion in outstanding student loan debt. Although younger people hold most of this debt, older Americans increasingly find themselves saddled with student loan debt as well.

The number of older Americans with student loan debt has been rising steadily. Nearly 40 percent of federal borrowers over the age of 65 have defaulted on their student loans. An estimated 452,000 people aged 62 and older had student loans in default, according to a January report from the Consumer Financial Protection Bureau. As of the first quarter of 2025, there are around 2.9 million Americans aged 62 and older who have student loan debt. That is a 71 percent increase from 2017, when there were 1.7 million such borrowers.

Garnishment of Social Security Benefits

One of the most concerning aspects of this issue is the garnishment of Social Security benefits to repay defaulted student loans. Under the Treasury Offset Program (TOP), the federal government can withhold up to 15 percent of monthly Social Security or disability benefits for these defaulted student loans.

Offsets under the Treasury Offset Program (TOP) are a particularly devastating practice for seniors and people with disabilities who rely on Social Security as their sole source of income. That led Social Security beneficiaries who have had their payments garnished to balloon from approximately 6,200 beneficiaries to 192,300 between 2001 and 2019, according to the CFPB.

The Trump administration warned that Social Security benefits could be garnished for defaulted student loans as early as June. The Trump administration says it's pausing the garnishment of Social Security benefits for student loan borrowers who have defaulted. That means a temporary pause on a decision announced in April to restart collections on student loans in default. On May 5, the restart policy was put into action when the Education Department began involuntary collections through the Treasury Department's offset program, which claws back overdue debts by garnishing federal payments such as tax refunds and Social Security checks. The department has not garnished any Social Security benefits since the post-pandemic resumption of collections and has paused “any future Social Security offsets,” department spokesperson Ellen Keast said.

The Impact of Garnishment on Vulnerable Populations

Offsetting Social Security benefits can push beneficiaries closer to-or even into-poverty, undermining the Social Security Act’s mission of providing for ‘the general welfare,’ basic economic security, and the well-being of vulnerable Americans. Many Social Security recipients rely on those checks for most, if not all, of their income. The baseline amount of $750, which has not been increased in decades, is hundreds of dollars below the monthly poverty level. The CFPB report suggests that these forced collections could therefore “push older borrowers into poverty.”

“Losing a portion of their Social Security benefits to repay student loans could mean not having enough for food, transportation to medical appointments, or other based necessities,” she said. “As a growing number of older Americans have federal student loan debt when they near or enter retirement age, we are concerned that these older borrowers are disproportionately subject to TOP collection,” wrote the lawmakers. Almost a third of borrowers 50 and older who had offsets lasting five years or longer had their loan balances increase during this time period.

The Role of Social Security

Social Security was created in response to the widespread poverty experienced by older adults during the Great Depression, and the inadequate safety net provided by state welfare programs at that time. Social Security was designed as a social insurance program, paid by contributions from employees and employers, to provide a basic level of income that would protect its insured workers and their families. At the same time, the program was intended to reduce their dependence on welfare. For example, Congress required the Social Security program to annually apply a Cost of Living Adjustment to protect against the devaluation of its benefits from inflation. Likewise, accounting for the fact that many older adults use their income from Social Security to pay their Medicare premiums, Congress protected said benefits from being lowered in years when the monthly Medicare premium for Part B was higher than the average increase in monthly benefits.

Available Relief Options and Borrower Rights

Borrowers who have defaulted on their federal student loans will no longer be at risk of having their Social Security benefits garnished, an Education Department spokesperson said Tuesday.

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The Trump administration last month retreated from another type of Social Security benefit clawback, when it announced it would only take 50% of a person's monthly check to recover overpayments, down from a previously announced 100%. Borrowers may qualify for a TPD discharge if they suffer from a mental or physical disability that is severe and permanent and prevents them from working.

That notice should include information on whom to contact in order to challenge the collection activity, Kantrowitz said. With that in mind, your next step may be pursuing a discharge with your student loan servicer.

Borrowers facing default have options to mitigate the effects:Loan rehabilitation. Making a certain number of consecutive, on-time payments can restore a loan to good standing. Loan consolidation. Combining multiple federal loans into one can reset the default status. However, keep in mind that it may result in higher interest costs over time. Default resolution group. The Department of Education’s Default Resolution Group helps in exploring repayment options and resolving defaults. Income-Driven Repayment (IDR) Plan. Borrowers can apply for an Income-Driven Repayment (IDR) plan, which bases your federal student loan payment on your monthly income and the size of your family. An IDR plan could help make payments more affordable for older debtors living on a fixed income. The Office of Federal Student Aid said it has implemented an enhanced process to make enrolling in an IDR plan easier for borrowers.

Factors Contributing to the Problem

Several factors contribute to the growing problem of student loan debt among older Americans:

Rising Tuition Costs: The cost of attendance at colleges and universities has risen much faster than inflation and wage growth.
Parent PLUS Loans: These are offered directly to parents of undergraduates from the federal government with limited underwriting. As such, Parent PLUS borrowers sometimes lack the ability to repay the loan.
Cosigned Private Student Loans: Financial institutions usually will not make a loan directly to a student alone. Instead, they require a cosigner. Often, parents, grandparents, and other family members serve as cosigners.
Problems with For-Profit Colleges: For-profit colleges claim to expand educational opportunities for underserved populations, who are more likely to attend them. But for-profit colleges are expensive and often do not offer valuable educational opportunities for students.
Impact on retirement savings: Carrying student debt throughout one’s working years makes it harder for people to save for retirement. Moreover, student debt can directly affect retirement income, as those who default on federal student loans are subject to Social Security offset (similar to garnishment).
Student loan impact by race and ethnicity: Student loans pose disproportionate burdens on people from nonwhite racial and ethnic groups. They take out more student loans. For example, 81 percent of African American and 60 percent of Hispanic/Latino undergraduates take out student loans, compared with 59 percent of white undergraduates.

The CARES Act and Subsequent Extensions

The CARES Act, passed on March 27, 2020, temporarily reduced interest rates to zero and suspended monthly payments for all federal loans owned by the Department of Education. While the payment suspension through the CARES Act expired on September 30, 2020, it was repeatedly extended administratively through October 2023. In 2021, the Department of Education extended these protections to defaulted commercially held FFEL loans. In addition to the payment “pause,” the CARES Act and other related initiatives temporarily removed many of the negative consequences of federal student loan default, such as forced collections and negative credit reporting, for certain borrowers.

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The Resumption of Collections and Potential Effects

The US Department of Education has announced it will begin forced collections on defaulted federal student loan debt, affecting more than 5 million borrowers with potential wage garnishment, tax refund seizure, and reduced federal benefits. In early May 2025, the Trump administration announced it will be reinstating involuntary collections on defaulted federal student loans. This ends a five-year pause that had been initiated during the COVID-19 pandemic.

As a result, these borrowers may expect to face wage garnishment, tax refund seizures, and reductions in federal benefits, such as Social Security payments.

The resumption of collections has significant implications for borrowers, including:

Financial hardship: Many borrowers, particularly low-income individuals and seniors on fixed incomes, may struggle to meet basic needs amid reduced income from garnished wages or benefits.
Credit consequences: Defaulting on student loans can lead to a significant drop in credit scores, affecting a borrower's ability to secure housing, employment, or additional credit.
Emotional Impact: Debtors may also suffer from chronic stress or a sense of powerlessness under the weight of financial strain.

Institutional Accountability

The administration has also warned educational institutions that high default rates among former students could jeopardize their access to federal student aid programs. Schools with default rates exceeding certain thresholds risk losing eligibility, prompting calls for improved financial counseling and support for students.

Income-Share Agreements (ISAs)

In recent years, some colleges and noncollege training programs have started offering ISAs as an alternative or complement to traditional student loans. ISAs provide students with up-front educational funding in exchange for a percentage of future income. They may substitute for parent borrowing or private student loans.

Abuses in Servicing and Debt Collection

Regardless of the program's quality, once a borrower is required to repay a student loan, other potential problems can arise. Student loan servicers are companies that collect debt payments on behalf of lenders. Servicers have often been accused of engaging in deceptive practices. A 2024 CFPB report on consumer complaints found that servicers made a range of costly errors that led to consumer hardship. These included miscalculated billing statements, miscredited payments, credit reporting errors, and delays in discharging loans.

Highlighting problems in the servicing industry, in 2024, the CFPB filed a proposed order against Navient “for years of failures and lawbreaking.” Navient illegally steered borrowers into more costly repayment options by preventing them from enrolling in affordable income-driven repayment plans. The order would ban Navient from continuing to service or acquire federal student loans in the future. In response to servicing challenges, several states have established student loan ombudsmen to monitor and address borrowers’ concerns. Some now also license student loan servicers for both federal and private loans.

Bankruptcy and Federal Repayment Plans

For many years, both federal and private student loans have been largely ineligible to be discharged in bankruptcy, unlike other types of consumer debts. However, federal regulators made this easier in 2022. Federal loans could be discharged administratively outside of bankruptcy in cases of death, permanent disability, or a small number of other scenarios. In 2022, however, the Justice Department and the Education Department issued guidance to help borrowers seeking hardship discharges. This made it easier to discharge student loan bankruptcy debt.

The Department of Education offers income-driven repayment plans for students who take out loans but cannot afford the standard payment amount. Typically, borrowers who make all payments on time have the rest of their debt forgiven at the end of the loan period. However, federal Parent PLUS borrowers cannot directly enroll in these plans. Those wishing to do so must first consolidate their federal loans and then apply for the least generous such plan.

Redress for Harms

Students at some institutions-including 98 percent of students at federally funded for-profit colleges-are prohibited from going to court to settle disputes. Instead, they are required to go to arbitration and may not pursue class claims even in arbitration. This is true even though some of these for-profit institutions have engaged in fraud or have not provided a return on the substantial investment a student may have paid.

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