The grim reality of student loan debt — it can last until retirement
By Jana Kasperkevic
For many young people, the rising cost of a college education, and the perceived need to get one to get ahead, has led to a ballooning student debt crisis. And there’s evidence that their lament that they’ll be paying off their loans until they retire is proving to be a reality.
In 2016, Americans owed more than $1.4 trillion in student loans and, according to Marketwatch, student-loan debt grows by $2,726 every second. On average, a college graduate leaves school with more than $30,000 in debt — that’s up from $16,650 in 2005.
But it’s not just recent graduates who are part of this crisis: In 2012, more than two million Americans 60 and older had some type of student debt, for a combined $43 billion in loans. And about 12.5 percent of that debt was delinquent for more than 90 days.
Furthermore, a December 2016 report from the Government Accountability Office (GAO) found that 870,000 Americans 65 and older — and 6.3 million Americans between 50 and 64 years old — still had federal student loans, and one in three of student loan holders 65 years or older had defaulted on their debts.
Now, garnishing of older Americans’ Social Security benefits to repay their student loans is becoming “pretty common,” according to Tashi Lhewa, a consumer law attorney at the Legal Aid Society in Brooklyn.
In addition, the Department of Education (DOE) tends to also seize other types of income — such as wages and tax refunds — from those who have defaulted on their federal student loans.
The December GAO report found that in 2015, $4.5 billion was collected on defaulted federal loans through garnishments. While about $171 million — less than 10 percent — was collected through garnishing Social Security, wage garnishments accounted for more than 30 percent of the amount collected by the federal government.
This trend seemed to have continued in 2016. Between July 1 and September 30, private debt collectors hired by the DOE to go after borrowers who’d defaulted seized more than $160 million in wages. And many of those borrowers are not likely to see their tax refunds this year.
While most millennials might not yet be worried about their Social Security benefits, they could be affected.
“My tax refunds are already being garnished,” said Jacques, 36, who asked to be identified by just his first name. “I figure that cost is infinitesimally less than what I’d be paying otherwise.”
He defaulted on a combination of federal and private student loans — amounting up to $50,000. The loans accumulated while Jacques was getting his BA in computer science and a graduate degree in history and philosophy. He’s currently working in the IT information technology sector in Miami.
“I don’t think garnishing — especially wages — is fair at all,” said Jacques. “We live in a system that tells us if we don’t have greater than a high school diploma we are doomed to poverty and misery. Yet, the cost of higher education has been exponentially growing since the 1970s, and once you receive a diploma from one of these institutions you are automatically shackled with debts that are practically impossible to pay off — especially in light of the lack of jobs available.”
But Jacques’ parents, or parents like his, might be on the hook for their kids. Lhewa of the Brooklyn Legal Aid society explains that parents who took out direct federal PLUS loans to help their children pay for school could find their own tax refunds and Social Security checks seized if they default.
“Pensions and Social Security are protected from the private creditors, but not from the government,” said Lhewa. Garnishing of such benefits can have a devastating impact on a vulnerable population like the elderly, especially because student loan debt cannot be discharged in a bankruptcy.
Navigating this is difficult for the many low-income elderly who have no one looking out for them. “They don’t know how to proceed when their Social Security gets seized or their tax refund gets seized,” Lhewa says. “That’s something we have found to be very problematic just because of their vulnerable status.”
And most borrowers are often confused about their rights when it comes to student loan collection.
“There is a general fear that the government has powerful collection tools to go after people, but most people don’t know the specifics — both in terms of what they can and cannot do, and what their legal rights might be,” said Adam Minsky, a lawyer specializing in student loans.
Private lenders, like Sallie Mae, SunTrust and Wells Fargo, first have to take borrowers to court to begin garnishing wages. The U.S. government doesn’t have to.
“Most people don’t realize this is a possibility when they sign the documents,” said Minsky. But as the subject has gotten more media attention, some older borrowers have begun to evince concerns. “I see more fear with parent borrowers who are either cosigners on their kids’ student loans or have taken out federal parent PLUS loans to finance their kids’ education. Social Security is much more on their minds, and they tend to show more concern about losing out on Social Security because they can’t afford those student loan payments as they get older.”
Politicians like Claire McCaskill (D-Missouri) and Senator Elizabeth Warren (D-Massachusetts). and Senator Bernie Sanders (I-Vermont), are concerned about the increasing number of seniors who have had their Social Security garnished. Waren had commissioned the December GAO report on the issue
“We should be expanding Social Security benefits, not punishing seniors for the ‘crime’ of getting a higher education. The rich get richer and get giant tax breaks, while low-income seniors see their Social Security cut to pay off decades old student debt,” Sanders tweeted in December.
While President Donald Trump has not spoken out on the issue of Social Security checks being garnished to repay federal student loans, he has promised to cap student loan payments.
“We would cap repayment for an affordable portion of the borrower’s income, 12.5 percent, we’d cap it. That gives you a lot to play with and a lot to do,” he said at a rally in October. “And if borrowers work hard and make their full payments for 15 years, we’ll let them get on with their lives. They just go ahead and they get on with their lives.”
This type of cap and forgiveness program would only affect federal loans — and a version of it was rolled out in 2015 under President Obama. Revised Pay as You Earn caps borrowers’ payments at 10 percent of their income. Borrowers with undergraduate degree will be forgiven remaining debt after 20 years of payments. Borrowers with graduate degrees will be forgiven after 25 years.