Student loan debt is a big problem for anyone who has it—especially if you can’t pay it back. The problem doesn’t just hit Millennials. Much of the more than $1 trillion in student loan debt nationwide is held by parents and grandparents.

If you are retired and responsible for a federal student loan that goes into default, your Social Security benefits can be garnished to help repay that debt. Here is how that could happen and what you can do about it.

A graduation cap and diploma ontop of cash indicative of student loan debt.

How Social Security Garnishment Works

When an agency decides to garnish your Social Security benefits, it is restricted to taking no more than 15 percent of your monthly total. Moreover, your benefits cannot be reduced below $750 per month, or $9,000 per year.

While you cannot appeal, challenge, question or change the amount of the debt, you can go to the agency that put the garnishment on and seek relief—for example, by requesting a payment plan because of the hardship you face from this action.

The Scope of the Problem

In two words: Not small. From 2005 to 2015 the number of people age 60 and older with student loan debt quadrupled to nearly 2.8 million, according to the Consumer Financial Protection Bureau (CFPB). Almost 40 percent of people over age 65 with student loan debt are in default. Currently, about 114,000 Social Security recipients are having benefits garnished due to a defaulted student loan. Of that number, 67,300 are living below the poverty line.

How We Got Here

Many older people in default on student loans took those loans out late in life to further their education in advance of a career change. They might have been seeking a better job or responding to unemployment. Unfortunately, unemployment for older people often results in their holding lower-wage jobs, making loan payback even tougher.

But perhaps the main reason for so much senior student loan debt is that parents and grandparents borrowed or cosigned to finance college for children and grandchildren.

Possible Government Fixes

The 15 percent garnishment limit has never been adjusted to reflect an increase in the cost of living. As originally set, the threshold was at the poverty guideline. Now it is below it. Many experts say this needs to be fixed.

The Department of Education has been encouraged to provide a clearer process for discharging debt for people with disabilities. According to the U.S. Government Accountability Office (GAO), the documentation rules “are not clearly and prominently stated.”

What You Can Do

It’s always better to attack the problem before the loan goes into default. For most federal student loans, failing to make a payment for 270 days will result in default. The government will sometimes agree to an income-based repayment plan, with payments as low as $1, but be aware that this can increase the size of your debt. All the same, choosing this option may make it possible for you to save to shore up your retirement.

The government will also forgive all or part of a defaulted loan if, for example, you are disabled or have a long-term medical condition. Keep in mind that the cancellation of a student loan results in taxable income in the year it was written off. This could still be cheaper than having to pay back the entire debt.

Be careful of services that market themselves aggressively as debt consolidation or counseling services. Some are shady; carefully research any you’re considering. Click here for advice from the Consumer Financial Protection Bureau and here for the Federal Trade Commission’s information.

Bankruptcy: A Last Resort

Absent relief from the federal government or your ability to withstand garnishment, the main solution left is bankruptcy (though it’s generally more difficult to wipe out student debt with bankruptcy than it is to absolve other kinds of debt). If you’re like most people, you consider this a sign of personal failure.

You should know, however, that it is legal to reorganize your debts. If it gets to this point, you should consult a tax professional to make sure everything is done properly and you know all the consequences of taking this action.


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