Social Security: Defaulted Student Loans Can Lead to Benefit Garnishments — How To Avoid It

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Social Security beneficiaries who are in default on federal student loans could have their monthly payments garnished to pay the debt down. To avoid this financial hit, there are steps you can take to get the loan out of default.

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More than 2.6 million Americans who are 62 and older owed a combined $107.3 billion in federal student loan debt at the end of 2022, Fox Business reported, citing U.S. Department of Education data. A relatively small percentage have loans in default. Those who do could have up to 15% of their Social Security benefits garnished, though the agency can’t reduce benefits to less than $750 a month or $9,000 a year, as GOBankingRates recently reported.

Before the garnishment begins, Social Security will send a notice, according to the Legal Aid Society of Cleveland. Debtors can’t appeal, challenge, change or question this debt, meaning the only way to avoid it is to get the loan out of default. Among the ways to do this are to consolidate the loan or set up a rehabilitation program.

Borrowers who received Direct Loans or FFEL Program Loans and qualify for rehabilitation must meet the following requirements, according to StudentAid.gov:

  • Agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date.
  • Make all nine payments during a period of 10 consecutive months.
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To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either agree to repay the new Direct Consolidation Loan under an Income-Driven Repayment plan or make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.

Social Security benefits can be garnished for a number of reasons. In addition to defaulted student loans, these include overdue federal taxes as well as child support, alimony or restitution.

State laws determine a valid garnishment order for child support, alimony and restitution, according to the Social Security Administration. You can’t appeal to the agency to challenge this kind of garnishment. For that, you’ll need to contact an attorney or representative in the jurisdiction where the court issued the order. To appeal a tax garnishment, you will need to contact the IRS at 800-829-7650 to discuss your appeal rights.

The Department of the Treasury can also withhold Social Security benefits to collect delinquent non-tax debts owed to other federal agencies. There is no appeal available under the Social Security Act, so if you find yourself in this situation you can contact Treasury staff at 800-304-3107.

If there are any changes to your garnishment order, you should go to your local Social Security office with a new court order that changes the garnishment of your benefits.

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Your Social Security benefits are not subject to garnishment when it comes to private debt such as medical costs, car loans and credit card bills.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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