Federal Student Loans And Social Security

     On January 8, 2025 the Consumer Financial Protection Bureau issued an "Issue Spotlight" on Social Security Offsets and Defaulted Student Loans. Here are some excerpts:

... Between2001 and 2019, the number of Social Security beneficiaries experiencing reduced benefits due to forced collection increased from approximately6,200 to 192,300. This exponential growth is likely driven by older borrowers who make up an increasingly large share of the federal student loan portfolio. The number of student loan borrowers ages 62 and older increased by 59 percent from 1.7 million in 2017 to 2.7 million in 2023,compared to a 1 percent decline among borrowers under the age of 62. ...

Despite the exponential increase in collections from Social Security, the majority of money the Department of Education has collected has been applied to interest and fees and has not affected borrowers’ principal amount owed. ...

Large shares of Social Security beneficiaries affected by forced collections may be eligible for relief or outright loan cancellation, yet they are unable to access these benefits, possibly due to insufficient automation or borrowers’ cognitive and physical decline. ...

 

     Does this seem like a partisan issue? Should it?

350,000 Federal Student Loans Discharged In Data Match With Social Security

     From Forbes:

Last year, the Biden administration announced a new initiative to streamline student loan relief for certain disabled borrowers. By allowing the Social Security Administration to share data with the Education Department about borrowers who were receiving Social Security Disability benefits, the administration could identify borrowers who would qualify for the TPD discharge program, and then cancel their student loans automatically.

Today, the administration announced that through this data sharing initiative, the Education Department has cancelled approximately $7 billion in federal student loan debt for 350,000 borrowers. ...

The Department anticipates that another 15,000 to 20,000 borrowers may receive TPD discharges every quarter going forward via the same data sharing program. ...

Seizure Of Social Security Benefits To Satisfy Student Loan Debt Suspended Until November

      From CNBC:

The U.S. Department of Education has suspended the seizure of tax refunds, Social Security and other government payments to satisfy defaulted student loans until November, the agency said.

About 9 million people have a federal student loan in default, which means they’ve fallen at least 270 days behind on payments.

     Why is it that the government has the power to seize Social Security benefits to collect on a student loan debt? We don't allow collection of other debts in this way. For that matter, why is it nearly impossible to discharge a student loan debt in bankruptcy? 

     I ask clients if they have outstanding student loan debts. I'd say that 90% have no student loan debt and are surprised at the question. The other 10% are surprised to find out that being disabled may have an effect on their student loans. It's like asking about disabled children. Most of my clients don't have disabled children so the question doesn't matter to them but for that minority of my clients who have disabled children, it matters a lot.

Federal Student Loan Discharge Changes Coming

      From Forbes:

The Biden administration took a big step this week towards making significant changes to a key federal student loan forgiveness program that provides relief for disabled student loan borrowers.

The Total and Permanent Disability (TPD) discharge program provides student loan forgiveness to federal loan borrowers who are unable to maintain substantial, gainful employment due to a physical or psychological medical impairment. …

The Education Department is moving forward to implement significant changes to the TPD Discharge program through a process called negotiated rulemaking — a lengthy, formalized procedure where a committee of key stakeholders must hold public meetings and reach consensus to overhaul the rules that govern federal student loan programs.

Yesterday, the negotiated rulemaking committee reached an agreement on implementing several big changes to the TPD discharge program:  …

• Expand Eligibility For Recipients of Social Security. For borrowers receiving Social Security disability benefits, the new rules would eliminate the requirement that a borrower’s disability review period be at least five to seven years. Instead, borrowers who have been receiving Social Security disability benefits for at least five years prior to applying for TPD relief, or have a disability onset date at least five years before applying, would be eligible. This would effectively expand the pool of eligibility for disabled borrowers and make it easier for borrowers to show that they qualify for relief.

     Far more disabled people have federal student loans outstanding than you might imagine. This is a big deal for them. 

Relief For Some Disabled People With Student Loans

      From National Public Radio:

The U.S. Education Department announced Thursday that it is discharging the outstanding student loans of more than 323,000 borrowers who have significant, permanent disabilities, and will remove barriers for borrowers who qualify for this relief in the future. The announcement will erase some $5.8 billion in debt and marks a significant step toward fixing a troubled debt relief program meant to help borrowers with disabilities. ...

Now, relief will become automatic for those who are identified through a data match with the Social Security Administration. The next match is in September, and based on those who were identified in June, the department expects more than 323,000 people to receive relief amounting to $5.8 billion. ...

     This won't be for all recipients of Social Security disability benefits -- just those assigned to the MINE (Medical Improvement Not Expected) category. Those who are not in the MINE category may still get relief they must apply and it's not automatic.

400,000 Not Getting The Relief They Deserve

     From Forbes:

Student loan borrower advocacy organizations filed a formal petition today, calling on the Biden administration to grant automatic forgiveness to hundreds of thousands of disabled student loan borrowers who may not even realize that they qualify for a discharge. ...

To be granted a TPD [Total and Permanent Disability] Discharge, however, disabled student loan borrowers must submit a formal application, which can be a cumbersome process, particularly for borrowers who suffer from severe physical and psychological impairments. The Department of Education has authority to automatically grant a TPD Discharge to disabled student loan borrowers who are receiving Social Security Disability benefits, if they have a disability review period of at least five to seven years. The Social Security Administration has identified approximately 400,000 disabled student loan borrowers who would qualify for relief, and the agency has shared that information with the Department of Education. But, the Department has not acted to cancel the student debt balances of these borrowers. Many borrowers do not even realize that they qualify, and most have not submitted applications. ...

The petition calls on the Department to use the information it already has regarding the disabled status of these 400,000 borrowers to automatically forgive their student loan debt. In 2019, the Department was able to implement widespread automatic TPD discharges for borrowers identified by the Veteran’s Administration as totally and permanently disabled due to a service-connected disability. Advocates argue that the Department should enact a similar automated discharge system for borrowers determined to be disabled by the Social Security Administration, as well. ...

SSA Doing Poor Job Of Identifying Disability Recipients Eligible For Student Loan Relief

     From a recent report by Social Security's Office of Inspector General (OIG):

Background: Individuals with TPD [Total and Permanent Disability] are eligible to have their Federal [student] loan debt discharged. To assist ED [Education Department] in fulfilling its obligation to ensure borrowers with disabilities who have Federal student loans more efficiently and effectively apply for TPD discharge of their student loans, SSA [Social Security Administration] and ED entered into a computer-matching agreement. ED accepts SSA’s MINE [Medical Improvement Not Expected] designation as evidence of TPD and uses SSA match responses to identify and inform borrowers with TPD of their eligibility for student loan discharge. In 2016, SSA’s initial match under the agreement identified approximately 400,000 borrowers with TPD. SSA reported these matches to ED. Since that time, SSA and ED have conducted similar quarterly data matches.

Findings: SSA needs to improve its data-matching process to assist ED in administering the TPD discharge process for disability beneficiaries with student loan debt. We estimate data matches SSA completed during our review period did not identify 36,248 borrowers with MINE status. This occurred because SSA had incorrect coding in its Disability Control File or had converted the beneficiaries from disability to retirement benefits. As a result, SSA did not identify these beneficiaries to ED as eligible for loan discharge.

     Let me explain why this is important. Many, many disabled people have outstanding federal student loans. Mostly it's loans they took out. Sometimes, they were a guarantor of a loan to a child.  It's almost impossible to discharge these loans in bankruptcy. The lenders are pitiless and the laws draconian. Much of the "education" was worthless. These loans can be $100,000 or more. People who are disabled desperately need to get out from under these loans. It sounds like SSA is making a mistake for almost 10% of claimants. That's not 10% of claimants who should be eligible for relief but 10% of ALL claimants. That's a huge error rate. Also, this sort of error assures that SSA will be wasting money doing unnecessary continuing disability reviews for people who they already know won't improve. It also assures that the Department of Education has to slog through a lot of applications for TPD status proven by means other than a Social Security determination that could have been cleared quickly if the Department of Education had just received appropriate information from SSA.

     To my mind, this problem deserves a Congressional hearing.

     Notice the chart below from the report. Why did the identification of those eligible for loan discharge decline so abruptly after the 2016 election?

Student Loan Debt Hanging Over The Heads Of Retirees

     From the Texas Tribune:

 If 69-year-old Lynda Sue Costley wants to shower, she has to go to a friend’s house. Her trailer, on a gravelly road outside Amarillo, hasn’t had running water since 2014 — when her husband died from cancer. She spent the little savings she had on his medical care, she said, and hasn’t repaired the burst pipe. 

Costley works part time at a food bank, making $7.25 an hour, and said she stretches every dollar she has. But every month, she receives a letter in the mail saying the federal government is withholding $134 from her Social Security checks — the equivalent of 18 hours of work. 

Like death and taxes, Costley may be facing another certainty in life: her student loans.

Although she attended college decades ago and made payments when she could, Costley’s debt has gone into default, swollen with accrued interest and been turned over to a collection company. She’s had her wages garnished and her income tax refunds withheld. Nearing 70, she still owes nearly $12,000 for classes she attended in the 1980s and 1990s — and her balance continues to be padded by interest and the debt collector’s costs. ... 

Typically associated with millennials, the specter of student loan debt hangs over potentially thousands of retirement-age Texans, like Costley. Older Americans — ages 65 and over — were the fastest-growing demographic of student loan holders, according to a government report from 2016, and the most likely to be in default. ...

     Student loan debts aren’t like other debts. They can’t be discharged in bankruptcy and Social Security benefits may be garnisheed to collect them. It’s time to change one or both of these. 

More And More Student Loan Debt Among Social Security Recipients

     The Christian Science Monitor has a nice article on the big and growing problem of student loan debt among those receiving Social Security retirement benefits. Here's a chart from the article showing just how big a problem it is.

     Unlike other debts, student loan debts can be collected by garnisheeing Social  Security benefits.

     I don't know the entire solution but I'm sure part of it is to make tuition at public universities more reasonable and to have public universities offer more distance education. There's too much student loan debt generated by questionable for profit education enterprises. The private for profit sector does a lot of things well but I don't think education is one of them.

Class Action Helps Protect Some Social Security Disability Benefits From Student Loan Collection

     From Marketwatch:

Since 2007 Linda Carrasquillo has been unable to work due to an injury she suffered at her job cleaning buses.  

And yet, every month for seven years, the government took great pains to collect on a $4,000 loan she took out to pay for her daughter’s schooling — by withholding part of the money she received through her Social Security disability benefits. 

Feeling stressed by the loan, Carrasquillo and her daughter called the nonprofit organization collecting the debt on behalf of the federal government to see if she could work out a deal. But they couldn’t come to an arrangement Carrasquillo could afford. Eventually she fell behind on her rent and faced the possibility of eviction. ... 

But what Carrasquillo didn’t know is that the entire time she was struggling to manage her limited finances, the government should have never been collecting on her debt. She qualified for what’s known as a total and permanent disability discharge, which allows borrowers to have their federal student loans wiped away if they have a physical or mental disability that makes it impossible for them to work.  

Recently, Carrasquillo finally got the more than $4,000 the government garnished from her Social Security checks back — but it took a lawsuit. She’s one of nine plaintiffs in a case brought by Brooklyn Legal Services, a division of Legal Services NYC, in 2016 against multiple federal agencies that settled last month. In total, the plaintiffs got back nearly $23,000 that was garnished from their disability benefits to repay their student loans. ... 

But advocates would like the government to go further by automatically cancelling the debt in cases where they know a borrower qualifies for a disability discharge. A bipartisan group of 51 attorneys general wrote to Secretary of Education Betsy DeVos last monthasking that she automatically cancel the debt of veterans who the agency has identified as qualifying for a disability discharge. ...

This Is Terrible

     From WFLA:

Mamie Walker is 84-years-old, has never attended college and depends on her monthly social security check of $1,498 to survive. 

But for the past two months, the government has sent Mamie nothing, except a letter claiming she owes them $224,414.50. 

A letter from the Treasury Department 

claims she has been referred to them for "collection action."  

The letter explains up to 15 percent of each of her checks will be withheld to pay the debt. That was shocking enough, but no check came at all in February or March. She received another letter stating she won't receive another check until Sept. 2031.

"I'll probably be dead by then," Walker said. "I'm so scared. I don't sleep at night because I'm so scared next week ... my lights are going to be off." 

Mamie says she not only never went to college, but she never learned to read or write because she had to go to work as a child to help support her family as a "field hand." ...

     I can guess that she guaranteeded a student loan for a relative. If not, this is one hell of a mistake. If it is a student loan for a relative, this points out the horrors of the current system. It’s possible for her to get out from under this crushing burden by declaring bankruptcy but it’s not easy.

Important Change For Disabled People With Federal Student Loans

     I missed that the big tax bill passed at the end of 2017 contained a change that benefits some disabled individuals. You were already able to get a federal student loan discharged if you are disabled and Social Security had set a five to seven year re-examination date for you. However, the discharge of the debt was considered income to the disabled person which often meant that the discharge could cause an expensive tax liability, which defeats the purpose of giving the discharge in the first place. That was changed at the end of 2017 by 26 U.S.C. §108(f)(5)(A), which provides that the discharge of a student loan debt for this reason is not income. However, this sunsets after 2026 but I doubt it will be allowed to end then.

     Unfortunately, the five to seven year re-examination date requirement limits the value of this. I don't know what the numbers are but I'm pretty sure that few who are found disabled by Social Security get a five to seven year re-examination date even though very few have a realistic hope of getting better. I don't know that there are any re-exam dates that long for any sort of mental illness other than profound brain injury.

Was This Data Sharing Legal?

     From the Los Angeles Times:

A group of former students defrauded by for-profit colleges is alleging in court that the Education Department illegally obtained and used their Social Security data to limit their student loan relief.

The Education Department announced in December that it will start granting some former students at the now-defunct Corinthian Colleges only partial federal student loan forgiveness, in part to save taxpayers' money. The agency said it will use students' earnings data to determine how much of their loans to forgive. 

Some students have already received notices from the department that only 50% or less of their loan will be wiped out.

A motion filed by several former Corinthian students over the weekend alleges that the Education Department obtained the earnings figures from the Social Security Administration in violation of several laws as well as the Constitution. Attorneys with the Project on Predatory Student Lending at Harvard University representing the students say the agency should have turned to the students for their data and should have notified them of its actions in order to give them a chance to react. ...

The Social Security Administration did not reply to requests for comment.

The Obama administration went hard after for-profit colleges accused of fraud, closing down Corinthian and other major chains and tightening regulations for those schools. The administration also spent $550 million to fully forgive student loans for tens of thousands of students.

[Secretary of Education Betsy] DeVos has said the Obama regulations were unfair and is writing new ones. She has said her new system of partial loan forgiveness will be fairer to students and taxpayers.

     I think these students ought to get full relief but that's not my point here. There are laws concerning inter-agency data releases. I'm no expert on them but this data release doesn't sound kosher.

Senator Warren Challenges Social Security Information Exchange With Department Of Education

     From a letter from Senator Elizabeth Warren to the Inspector Generals at the Department of Education and the Social Security Administration (footnotes omitted):

I write to request that you inspect and examine whether the Department of Education ("the Department" or ED) violated its information exchange agreements with the U.S. Social Security Administration ("SSA") in order to establish a scheme to limit relief to thousands defrauded borrowers under its Borrower Defense for Repayment ("Borrower Defense") authority.

On December 20th, 2017, the Department announced a new plan and formula to limit debt relief to former Corinthian College students and other defrauded student borrowers by comparing their average earnings to students who graduated from similar vocational programs of study.

The Department stated in its press release that, "[s]tudents whose earnings are at 50 percent or more of their [Gainful Employement] program peers will receive proportionally tiered relief to compensate for the difference and make them whole." It appears the Department plans to use federal earnings data produced from federal tax records to calculate partial relief for defrauded student borrowers. The Department obtained these federal earnings data through an information exchange agreement between the Department and SSA for aggregate earnings data.

I have a number of concerns with this plan, including whether it is allowed under the current information exchange agreement between the Department and SSA. On December 20th, 2017, The Washington Post reported that SSA provided an "unofficial, non-legal, staff-level" opinion that SSA staff"do[es] not believe (the Education Department] would be authorized to use earnings information [SSA] provide[s] under any current agreement to make decisions about whether or not to grant debt relief to borrowers in certain vocations. "

I am troubled by the Department's potential misuse of federal earnings data acquired from SSA through an information exchange agreement in order to limit loan relief for defrauded students....

Stop The Garnishment

     From a piece in Huffpost written by Nancy Altman and Raúl Grijalva:

... [U]ntil 1996, income from Social Security was one of the few sources that people with debt could count on because the benefits were off limits to creditors. Unlike your paycheck, which is subject to garnishment if you are late on a payment, your Social Security benefits were protected from debt collection. But in that year, Congress enacted the Debt Collection Improvement Act. That bill gave our government the power to seize a portion of Social Security benefits for the repayment of student loans, Veterans Administration home loans, food stamp overpayments and the like. It is ironic, at best, that Congress has exempted itself from a rule that limits private creditors. The government garnishing the very income that provides such modest support and lifts so many people out of poverty is plain wrong.   

Let’s look at student loans as one example. It is no news that our nation is facing a student loan debt crisis. However, despite popular belief, student debt is not only a young person’s problem. People 65 and older owe billions of dollars on outstanding student loans. As the population ages, the amount owed by older Americans continues to increase.  

Some of this debt is decades old, incurred when older Americans sought higher education. Some is the result of co-signing loans to help their children and grandchildren. If the loans can’t be paid off, they will follow you into retirement. Student loans owed by seniors are much more likely to be in default than student debt held by younger Americans. In 2013, 12 percent of federal student loans held by those aged 24 to 49 were in default. In contrast, 27 percent of federal student loans held by those aged 65 to 74 were in default. For those aged 75 and older, the default rate spikes to more than 50 percent! 

That’s where Social Security comes into play. If the student loan was made by a private bank or other financial institution, your Social Security benefits are safe. But if the loan was made by the government, a portion of your hard-earned Social Security benefits can be grabbed without your permission. 

This garnishment of Social Security benefits is happening and at an alarming rate. The number of retirees and people with disabilities who have had a part of their modest Social Security benefits seized by the government to pay off student loans tripled between 2006 and 2013. And this number is projected to grow dramatically in the future, as the cost of education continues to balloon and our population ages. 

The good news is that there is a solution – Congress created this problem, which means that it can also fix it. The Protection of Social Security Benefits Restoration Act, which will be introduced in the House of Representatives after Thanksgiving, will overturn the wrong-headed 1996 legislation by restoring the protected status of Social Security trust fund payments. That means no more garnishment of already meager Social Security benefits. Led by Representatives Raúl M. Grijalva, John Larson, Marcia Fudge and Mark Pocan, this legislation is particularly important because in addition to facing a student debt crisis, the nation is facing a looming retirement income crisis. As more and more seniors retire in the future, Social Security will be even more important. ...

Lawsuit On Student Loan Debt Collection

     From the New York Daily News:

The feds are ripping off disabled Social Security recipients by skimming their benefits in order to pay back defaulted student loans — but not saying enough on what people can do to avoid it, a lawsuit alleges.

“Instead of focusing on getting disabled borrowers the relief they are entitled to under federal law,” the suit says, the Department of Education uses debt collection methods like the Social Security disability benefit offset “to collect money from disabled borrowers.” ...

The plaintiffs say their benefits are getting trimmed by loan debt that could be forgiven “if the defendants simply told them about the existence of the disability-based discharge.” ...

The suit wants Social Security recipients to get a better notice about the availability of the disability discharge and better government tracking so disabled recipients don’t get a lopped-off payment in the first place. ...

Student Loan Debt Out Of Control

     The New York Times has an editorial today on the rapidly increasing problem of student loan debt among the elderly. The editorial urges an end to seizing Social Security benefits to pay off private lenders.

Lawsuit On Student Loan Collection Practices

     From Market Watch:

For about a year, Hector Rodriguez lost a portion of his limited income, including in some months, a portion of his much-needed Social Security disability benefits over a student loan that was eligible for forgiveness.

Rodriguez, an army veteran, took out student loans in the 1970s to attend college, but he ultimately had to drop out due to frequent hospitalizations and later defaulted on the debt, according to a lawsuit he filed against multiple government agencies earlier this month. In 1973, he was diagnosed with schizophrenia. He began receiving Social Security disability benefits shortly thereafter and has received them continuously ever since.

Rodriguez’s disability was so severe that he qualified to have his student loans wiped away through what’s known as a total and permanent disability discharge (TPD). And yet, in 2013, he received a notice from the government indicating that the feds planned to garnish a portion of his disability benefits to pay off his student loan, according to his lawsuit. The notice never indicated that a disability discharge might be a possibility and when he spoke to the government-hired debt collector responsible for his loan he or she never provided that information even though he informed them that he was disabled, he claims.

Shortly thereafter, the government began taking $177 out of his $1,184 disability check. ...

But the Department of Education is working to make it easier for borrowers who qualify for a disability discharge to receive it. Earlier this year, the agency cross-referenced its records with those of the Social Security administration and identified nearly 400,000 borrowers who qualified for a discharge — about 100,000 of which were at risk of losing their tax refunds or Social Security benefits over the debt — and sent them a letter inviting them to apply for one. The agency also began suspending disability benefit offsets in cases where it’s clear the borrower has a medical condition that won't improve, according to the recent GAO report....

I.R.S. Drops Coal In The Stockings Of Poor Disabled People

     From the Washington Post:

The Treasury Department refuse[d] to stop forcing permanently disabled people to pay taxes on student loans that have been canceled, leaving a vulnerable population susceptible to thousands of dollars in charges, according to Senate staffers.

 Anyone with a severe disability is eligible to have the government discharge their federal student loans. The process is widely considered difficult to navigate, so the Obama administration allows people to use their Social Security designation to apply, yet few take advantage. As a result, the Education Department began identifying borrowers too disabled to repay their federal loans and guiding them through debt cancellation. The trouble is, every dollar forgiven by the government is considered taxable income.

Congressional lawmakers have urged Treasury to use its administrative authority to fix the problem, but the department is not taking action.

At a meeting Wednesday, Treasury officials informed Senate staffers that it will not issue guidance addressing the tax penalty for disabled borrowers, according to people in attendance who were not authorized to speak publicly. They said Treasury officials conceded that roughly two thirds of affected borrowers are insolvent, a designation that would allow Treasury to waive any taxes connected to discharged loans. Claiming insolvency, however, involves complex paperwork. ...

Student Loan Offset Problems

     The Government Accountability Office (GAO) has issued a 90 page report on the offsets applied to Social Security benefits due to unpaid student loans. Even though the GAO seems to me to try to downplay the problem, it's still clear that it's real and serious. Many people are being thrown into poverty by the offsets as shown by the chart below, even though many of the student loans went to pay for nearly worthless online education.

Click on chart to view full size