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A Blog from New America's Federal Education Budget Project

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Why Some New Retirees See Social Security Benefits Reduced for Unpaid Student Loans

Published:  August 20, 2012

An NPR story that aired last week underscored a familiar narrative that student loan debt follows borrowers for the rest of their lives. It looked at a new Wall Street Journal report that shows the federal government garnishing monthly benefits for some Social Security recipients because they owe back payments on federal student loans. That’s a growing problem, the story says – but is this problem further proof that student loans are spiraling out of control, or something completely unrelated?

The story, produced by Wall Street Journal’s SmartMoney, shows that the number of Social Security recipients who have seen at least one monthly benefit docked because they owed federal student loan payments has skyrocketed from six retirees in fiscal year 2000 to 115,000 retirees in about the first seven months of 2012. It doubled in the last year alone. That sure looks like the “student loan debt crisis” story we’ve seen so much of lately.

But wait a minute. The federal student loan program has only been around since the late 1960s, and it didn’t become widely available until the mid-1970s.


[Image from Congressional Budget Office, pg. xiv]

So it stands to reason that so few retirees had their Social Security checks nabbed back in 2000 to repay their student loans because they probably didn’t borrow federal student loans to attend college in the mid-1970s. For example, a retiree who was 62 in 2000 would have been about 37 years old in 1975, past the typical age for higher education.   

But someone who turned 62 in 2012 would have been in his prime student loan borrowing years – in his early 20s – right around the time federal student loans became widely available. Retirees claiming benefits at age 65 in 2012 would have been in their late 20s in the mid-1970s.

In other words, the country’s early student loan recipients have just now started retiring. Their unpaid loans – long forgotten – might now be catching up with them.

But NPR and SmartMoney say that many of the missed payments are actually for loans for a child or grandchild’s education. The article then admits that the data do not necessarily show that. The article reads:

Many of these retirees aren't even in hock for their own educations. Consumer advocates say that in the majority of the cases they've seen, the borrowers went into debt later in life to help defray education costs for their children or other dependents.… Other attorneys say they're working with older borrowers who had signed up for the federal PLUS loan – a loan for parents of undergraduates – to cover tuition costs. Other retirees took out federal loans when they returned to college in midlife, and a few are carrying debt from their own undergraduate or graduate-school years. (No statistics track exactly how many of the defaulting loans fall into which category.) [Emphasis added]

If no statistics track how many of the defaulting loans fall into which category, then the authors can’t know for sure if most retirees are in debt for their own educations or that of others. Making such a claim and linking it to current high costs of attending college, even with the limited anecdotal evidence they provide, adds more noise to an already heady debate. The rest of the article focuses on today’s high tuition costs and today’s students’ high student debt loads, concluding with a student aid advocate warning that “it is going to get worse.”

Yes, it’s going to get worse. As the first generation of Americans who could borrow federal student loans for themselves – and default on them – enrolls in Social Security en masse with each passing year, the numbers of checks the government garnishes to collect those old unpaid loans will surely increase. In the meantime, we’re still looking for data that confirm the growth in those practices is actually about today’s student loan apocalypse.

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