From How Can Social Security Children's Benefits Help Grandparents Raise Grandchildren?, by Liu, Siyan, and Laura D. Quinby of the Center for Retirement Research at Boston College:
In 2020, around two million grandparents were responsible for the basic
needs of their grandchildren, with grandparent care concentrated in
historically disadvantaged communities. Despite being particularly
vulnerable to financial insecurity, most grandparents are ineligible for
formal support -- such as subsidies for foster parents, housing
assistance, and Social Security dependent child benefits -- because they
raise their grandchildren outside of the foster care system. Using the
Health and Retirement Study and American Community Survey, this study
documents how grandparent caregivers differ from typical grandparents in
terms of time and money spent on grandchildren, demographic
characteristics, and economic resources. It then evaluates how their
finances would improve if eligibility for child benefits were aligned
with the more lenient tax criteria for claiming a dependent grandchild.
Being "outside of the foster care system" is definitely a problem but the Social Security aspect of it is that if you're on retirement benefits from Social Security, only your minor children and adult children who became disabled before age 22 can obtain child's benefits on your account. Your grandchildren are only eligible for these child benefits under very limited circumstances.
The children could get benefits if the grandparents adopted them but the grandparents are generally scared to try. The problem is that usually the children come to live with their grandparents because the parents have serious problems with substance abuse, other mental illness or are abusive. The grandparents are scared to rock the boat with an adoption petition. The parents may take the children back to a disordered, dangerous environment.
The Social Security Act could be altered to give children's benefits to grandchildren in the custody of their grandparents. A change along these lines would certainly be family friendly but at this point no Social Security legislation, whatever its merits, can pass Congress.