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When
borrowers default on their federal student loans, the U.S. Department
of Education (“Department of Education”) can collect the outstanding
balance through forced collections, including the offset of tax refunds
and Social Security benefits and the garnishment of wages. At the
beginning of the COVID-19 pandemic, the Department of Education paused
collections on defaulted federal student loans.
This year, collections are set to resume and almost 6 million student
loan borrowers with loans in default will again be subject to the
Department of Education’s forced collection of their tax refunds, wages,
and Social Security benefits.
Among the borrowers who are likely to experience forced collections are
an estimated 452,000 borrowers ages 62 and older with defaulted loans
who are likely receiving Social Security benefits.

This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of Social Security benefits.
It also describes how forced collections can push older borrowers into
poverty, undermining the purpose of the Social Security program.

Key findings

• The
  number of Social Security beneficiaries experiencing forced collection
  grew by more than 3,000 percent in fewer than 20 years; the count is
  likely to grow as the age of student loan borrowers trends older.
  Between 2001 and 2019, the number of Social Security beneficiaries
  experiencing reduced benefits due to forced collection increased from
  approximately 6,200 to 192,300. This exponential growth is likely driven
  by older borrowers who make up an increasingly large share of the
  federal student loan portfolio. The number of student loan borrowers
  ages 62 and older increased by 59 percent from 1.7 million in 2017 to
  2.7 million in 2023, compared to a 1 percent decline among borrowers
  under the age of 62.
• The total amount
  of Social Security benefits the Department of Education collected
  between 2001 and 2019 through the offset program increased from $16.2
  million to $429.7 million. Despite the exponential increase in
  collections from Social Security, the majority of money the Department
  of Education has collected has been applied to interest and fees and has
  not affected borrowers’ principal amount owed. Furthermore, between
  2016 and 2019, the Department of the Treasury’s fees alone accounted for
  nearly 10 percent of the average borrower’s lost Social Security
  benefits.
• More than one in three
  Social Security recipients with student loans are reliant on Social
  Security payments, meaning forced collections could significantly
  imperil their financial well-being. Approximately 37 percent of the
  1.3 million Social Security beneficiaries with student loans rely on
  modest payments, an average monthly benefit of $1,523, for 90 percent of
  their income. This population is particularly vulnerable to reduction
  in their benefits especially if benefits are offset year-round. In 2019,
  the average annual amount collected from individual beneficiaries was
  $2,232 ($186 per month).
• The physical well-being of half of Social Security beneficiaries with student loans in default may be at risk.
  Half of Social Security beneficiaries with student loans in default and
  collections skipped a doctor’s visit or did not obtain prescription
  medication due to cost.
• Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
  Currently, only $750 per month of Social Security income—an amount that
  is $400 below the monthly poverty threshold for an individual and has
  not been adjusted for inflation since 1996—is protected from forced
  collections by statute. Even if the minimum protected income was
  adjusted for inflation, beneficiaries would likely still experience
  hardship, such as food insecurity and problems paying utility bills. A
  higher threshold could protect borrowers against hardship more
  effectively. The CFPB found that for 87 percent of student loan
  borrowers who receive Social Security, their benefit amount is below 225
  percent of the federal poverty level (FPL), an income level at which
  people are as likely to experience material hardship as those with
  incomes below the federal poverty level.
• Large
  shares of Social Security beneficiaries affected by forced collections
  may be eligible for relief or outright loan cancellation, yet they are
  unable to access these benefits, possibly due to insufficient
  automation or borrowers’ cognitive and physical decline. As many as
  eight in ten Social Security beneficiaries with loans in default may be
  eligible to suspend or reduce forced collections due to financial
  hardship. Moreover, one in five Social Security beneficiaries may be
  eligible for discharge of their loans due to a disability. Yet these
  individuals are not accessing such relief because the Department of
  Education’s data matching process insufficiently identifies those who
  may be eligible.

Taken together,
these findings suggest that the Department of Education’s forced
collections of Social Security benefits increasingly interfere with
Social Security’s longstanding purpose of protecting its beneficiaries
from poverty and financial instability.

Introduction

When
borrowers default on their federal student loans, the Department of
Education can collect the outstanding balance through forced
collections, including the offset of tax refunds and Social Security
benefits, and the garnishment of wages. At the beginning of the COVID-19
pandemic, the Department of Education paused collections on defaulted
federal student loans. This year, collections are set to resume and
almost 6 million student loan borrowers with loans in default will again
be subject to the Department of Education’s forced collection of their
tax refunds, wages, and Social Security benefits.

Among
the borrowers who are likely to experience the Department of
Education’s renewed forced collections are an estimated 452,000
borrowers with defaulted loans who are ages 62 and older and who are
likely receiving Social Security benefits.
Congress created the Social Security program in 1935 to provide a basic
level of income that protects insured workers and their families from
poverty due to situations including old age, widowhood, or disability.
The Social Security Administration calls the program “one of the most
successful anti-poverty programs in our nation’s history.”
In 2022, Social Security lifted over 29 million Americans from poverty,
including retirees, disabled adults, and their spouses and dependents.
Congress has recognized the importance of securing the value of Social
Security benefits and on several occasions has intervened to protect
them.

This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of their Social Security
benefits.
It also describes how the purpose of Social Security is being
increasingly undermined by the limited and deficient options the
Department of Education has to protect Social Security beneficiaries
from poverty and hardship.

The forced collection of Social Security benefits has increased exponentially.

Federal
student loans enter default after 270 days of missed payments and
transfer to the Department of Education’s default collections program
after 360 days. Borrowers with a loan in default face several
consequences: (1) their credit is negatively affected; (2) they lose
eligibility to receive federal student aid while their loans are in
default; (3) they are unable to change repayment plans and request
deferment and forbearance; and (4) they face forced collections of tax refunds, Social Security benefits, and wages among other payments.
To conduct its forced collections of federal payments like tax refunds
and Social Security benefits, the Department of Education relies on a
collection service run by the U.S. Department of the Treasury called the
Treasury Offset Program.

Between
2001 and 2019, the number of student loan borrowers facing forced
collection of their Social Security benefits increased from at least
6,200 to 192,300.
That is a more than 3,000 percent increase in fewer than 20 years. By
comparison, the number of borrowers facing forced collections of their
tax refunds increased by about 90 percent from 1.17 million to 2.22
million during the same period.

This exponential growth of Social Security offsets between 2001 and 2019 is likely driven by multiple factors including:

• Older
  borrowers accounted for an increasingly large share of the federal
  student loan portfolio due to increasing average age of enrollment and
  length of time in repayment. Data from the Department of Education
  (which is only available since 2017), show that the number of student
  loan borrowers ages 62 and older, increased 24 percent from 1.7 million
  in 2017 to 2.1 million in 2019, compared to less than 1 percent among
  borrowers under the age of 62.
• A larger number of borrowers, especially older borrowers, had loans in default.
  Data from the Department of Education show that the number of student
  loan borrowers with a defaulted loan increased by 230 percent from 3.8
  million in 2006 to 8.8 million in 2019. Compounding these trends is the fact that older borrowers are twice as likely to have a loan in default than younger borrowers.

Due
to these factors, the total amount of Social Security benefits the
Department of Education collected between 2001 and 2019 through the
offset program increased annually from $16.2 million to $429.7 million
(when adjusted for inflation).
This increase occurred even though the average monthly amount the
Department of Education collected from individual beneficiaries was the
same for most years, at approximately $180 per month.

Figure 1: Number of Social Security beneficiaries and total amount collected for student loans (2001-2019)

While the total collected from
Social Security benefits has increased exponentially, the majority of
money the Department of Education collected has not been applied to
borrowers’ principal amount owed. Specifically, nearly three-quarters of
the monies the Department of Education collects through offsets is
applied to interest and fees, and not towards paying down principal
balances.
Between 2016 and 2019, the U.S. Department of the Treasury charged the
Department of Education between $13.12 and $15.00 per Social Security
offset, or approximately between $157.44 and $180 for 12 months of
Social Security offsets per beneficiary with defaulted federal student
loans. As a matter of practice, the Department of Education often passes these fees on directly to borrowers.
Furthermore, these fees accounted for nearly 10 percent of the average
monthly borrower’s lost Social Security benefits which was $183 during
this time.
Interest and fees not only reduce beneficiaries’ monthly benefits, but
also prolong the period that beneficiaries are likely subject to forced
collections.

Forced collections are compromising Social Security beneficiaries’ financial well-being.

Forced
collection of Social Security benefits affects the financial well-being
of the most vulnerable borrowers and can exacerbate any financial and
health challenges they may already be experiencing. The CFPB’s analysis
of the Survey of Income and Program Participation (SIPP) pooled data for
2018 to 2021 finds that Social Security beneficiaries with student
loans receive an average monthly benefit of $1,524.
The analysis also indicates that approximately 480,000 (37 percent) of
the 1.3 million beneficiaries with student loans rely on these modest
payments for 90 percent or more of their income,
thereby making them particularly vulnerable to reduction in their
benefits especially if benefits are offset year-round. In 2019, the
average annual amount collected from individual beneficiaries was $2,232
($186 per month).

A
recent survey from The Pew Charitable Trusts found that more than nine
in ten borrowers who reported experiencing wage garnishment or Social
Security payment offsets said that these penalties caused them financial
hardship.
Consequently, for many, their ability to meet their basic needs,
including access to healthcare, became more difficult. According to our
analysis of the Federal Reserve’s Survey of Household Economic and
Decision-making (SHED), half of Social Security beneficiaries with
defaulted student loans skipped a doctor’s visit and/or did not obtain
prescription medication due to cost.
Moreover, 36 percent of Social Security beneficiaries with loans in
delinquency or in collections report fair or poor health. Over half of
them have medical debt.

Figure 2: Selected financial experiences and hardships among subgroups of loan borrowers

Social Security recipients
subject to forced collection may not be able to access key public
benefits that could help them mitigate the loss of income. This is
because Social Security beneficiaries must list the unreduced amount of
their benefits prior to collections when applying for other means-tested
benefits programs such as Social Security Insurance (SSI), Supplemental
Nutrition Assistance Program (SNAP), and the Medicare Savings Programs.
Consequently, beneficiaries subject to forced collections must report
an inflated income relative to what they are actually receiving. As a
result, these beneficiaries may be denied public benefits that provide
food, medical care, prescription drugs, and assistance with paying for
other daily living costs.

Consumers’
complaints submitted to the CFPB describe the hardship caused by forced
collections on borrowers reliant on Social Security benefits to pay for
essential expenses.
Consumers often explain their difficulty paying for such expenses as
rent and medical bills. In one complaint, a consumer noted that they
were having difficulty paying their rent since their Social Security
benefit usually went to paying that expense.
In another complaint, a caregiver described that the money was being
withheld from their mother’s Social Security, which was the only source
of income used to pay for their mother’s care at an assisted living
facility.
As forced collections threaten the housing security and health of
Social Security beneficiaries, they also create a financial burden on
non-borrowers who help address these hardships, including family members
and caregivers.

Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.

The
Debt Collection Improvement Act set a minimum floor of income below
which the federal government cannot offset Social Security benefits and
subsequent Treasury regulations established a cap on the percentage of
income above that floor.
Specifically, these statutory guardrails limit collections to 15
percent of Social Security benefits above $750. The minimum threshold
was established in 1996 and has not been updated since. As a result, the
amount protected by law alone does not adequately protect beneficiaries
from financial hardship and in fact no longer protects them from
falling below the federal poverty level (FPL). In 1996, $750 was nearly
$100 above the monthly poverty threshold for an individual.
Today that same protection is $400 below the threshold. If the
protected amount of $750 per month ($9,000 per year) set in 1996 was
adjusted for inflation, in 2024 dollars, it would total $1,450 per month
($17,400 per year).

Figure
3: Comparison of monthly FPL threshold with the current protected
amount established in 1996 and the amount that would be protected with
inflation adjustment

Even if the minimum protected
income of $750 is adjusted for inflation, beneficiaries will likely
still experience hardship as a result of their reduced benefits.
Consumers with incomes above the poverty line also commonly experience
material hardship. This suggests that a threshold that is higher than the poverty level will more effectively protect against hardship.
Indeed, in determining an income threshold for $0 payments under the
SAVE plan, the Department of Education researchers used material
hardship (defined as being unable to pay utility bills and reporting
food insecurity) as their primary metric, and found similar levels of
material hardship among those with incomes below the poverty line and
those with incomes up to 225 percent of the FPL.
Similarly, the CFPB’s analysis of a pooled sample of SIPP respondents
finds the same levels of material hardship for Social Security
beneficiaries with student loans with incomes below 100 percent of the
FPL and those with incomes up to 225 percent of the FPL.
The CFPB found that for 87 percent of student loan borrowers who
receive Social Security, their benefit amount is below 225 percent of
the FPL.
Accordingly, all of those borrowers would be removed from forced
collections if the Department of Education applied the same income
metrics it established under the SAVE program to an automatic hardship
exemption program.

Existing options for relief from forced collections fail to reach older borrowers.

Borrowers
with loans in default remain eligible for certain types of loan
cancellation and relief from forced collections. However, our analysis
suggests that these programs may not be reaching many eligible
consumers. When borrowers do not benefit from these programs, their
hardship includes, but is not limited to, unnecessary losses to their
Social Security benefits and negative credit reporting.

Borrowers who become disabled after reaching full retirement age may miss out on Total and Permanent Disability

The
Total and Permanent Disability (TPD) discharge program cancels federal
student loans and effectively stops all forced collections for disabled
borrowers who meet certain requirements. After recent revisions to the
program, this form of cancelation has become common for those borrowers
with Social Security who became disabled prior to full retirement age. In 2016, a GAO study documented the significant barriers to TPD that Social Security beneficiaries faced.
To address GAO’s concerns, the Department of Education in 2021 took a
series of mitigating actions, including entering into a data-matching
agreement with the Social Security Administration (SSA) to automate the
TPD eligibility determination and discharge process.
This process was expanded further with new final rules being
implemented July 1, 2023 that expanded the categories of borrowers
eligible for automatic TPD cancellation. In total, these changes successfully resulted in loan cancelations for approximately 570,000 borrowers.

However,
the automation and other regulatory changes did not significantly
change the application process for consumers who become disabled after
they reach full retirement age or who have already claimed the Social
Security retirement benefits. For these beneficiaries, because they are
already receiving retirement benefits, SSA does not need to determine
disability status. Likewise, SSA does not track disability status for
those individuals who become disabled after they start collecting their
Social Security retirement benefits.

Consequently,
SSA does not transfer information on disability to the Department of
Education once the beneficiary begins collecting Social Security
retirement.
These individuals therefore will not automatically get a TPD discharge
of their student loans, and they must be aware and physically and
mentally able to proactively apply for the discharge.

The
CFPB’s analysis of the Census survey data suggests that the population
that is excluded from the TPD automation process could be substantial.
More than one in five (22 percent) Social Security beneficiaries with
student loans are receiving retirement benefits and report a disability
such as a limitation with vision, hearing, mobility, or cognition.
People with dementia and other cognitive disabilities are among those
with the greatest risk of being excluded, since they are more likely to
be diagnosed after the age 70, which is the maximum age for claiming
retirement benefits.

These
limitations may also help explain why older borrowers are less likely
to rehabilitate their defaulted student loans. Specifically, 11 percent
of student loan borrowers ages 50 to 59 facing forced collections
successfully rehabilitated their loans, while only five percent of borrowers over the age of 75 do so.

Figure
4: Number of student loan borrowers ages 50 and older in forced
collection, borrowers who signed a rehabilitation agreement, and
borrowers who successfully rehabilitated a loan by selected age groups

Shifting demographics of
student loan borrowers suggest that the current automation process may
become less effective to protect Social Security benefits from forced
collections as more and more older adults have student loan debt. The
fastest growing segment of student loan borrowers are adults ages 62 and
older. These individuals are generally eligible for retirement
benefits, not disability benefits, because they cannot receive both
classifications at the same time. Data from the Department of Education
reflect that the number of student loan borrowers ages 62 and older
increased by 59 percent from 1.7 million in 2017 to 2.7 million in 2023.
In comparison, the number of borrowers under the age of 62 remained
unchanged at 43 million in both years.
Furthermore, additional data provided to the CFPB by the Department of
Education show that nearly 90,000 borrowers ages 81 and older hold an
average amount of $29,000 in federal student loan debt, a substantial
amount despite facing an estimated average life expectancy of less than
nine years.

Existing exceptions to forced collections fail to protect many Social Security beneficiaries

In
addition to TPD discharge, the Department of Education offers reduction
or suspension of Social Security offset where borrowers demonstrate
financial hardship.
To show hardship, borrowers must provide documentation of their income
and expenses, which the Department of Education then uses to make its
determination.
Unlike the Debt Collection Improvement Act’s minimum protections, the
eligibility for hardship is based on a comparison of an individual’s
documented income and qualified expenses. If the borrower has eligible
monthly expenses that exceed or match their income, the Department of
Education then grants a financial hardship exemption.

The
CFPB’s analysis suggests that the vast majority of Social Security
beneficiaries with student loans would qualify for a hardship
protection. According to CFPB’s analysis of the Federal Reserve Board’s
SHED, eight in ten (82 percent) of Social Security beneficiaries with
student loans in default report that their expenses equal or exceed
their income.
Accordingly, these individuals would likely qualify for a full
suspension of forced collections. Yet the GAO found that in 2015 (when
the last data was available) less than ten percent of Social Security
beneficiaries with forced collections applied for a hardship exemption
or reduction of their offset.
A possible reason for the low uptake rate is that many beneficiaries or
their caregivers never learn about the hardship exemption or the
possibility of a reduction in the offset amount.
For those that do apply, only a fraction get relief. The GAO study
found that at the time of their initial offset, only about 20 percent of
Social Security beneficiaries ages 50 and older with forced collections
were approved for a financial hardship exemption or a reduction of the
offset amount if they applied.

Conclusion

As
hundreds of thousands of student loan borrowers with loans in default
face the resumption of forced collection of their Social Security
benefits, this spotlight shows that the forced collection of Social
Security benefits causes significant hardship among affected borrowers.
The spotlight also shows that the basic income protections aimed at
preventing poverty and hardship among affected borrowers have become
increasingly ineffective over time. While the Department of Education
has made some improvements to expand access to relief options,
especially for those who initially receive Social Security due to a
disability, these improvements are insufficient to protect older adults
from the forced collection of their Social Security benefits.

Taken
together, these findings suggest that forced collections of Social
Security benefits increasingly interfere with Social Security’s
longstanding purpose of protecting its beneficiaries from poverty and
financial instability. These findings also suggest that alternative
approaches are needed to address the harm that forced collections cause
on beneficiaries and to compensate for the declining effectiveness of
existing remedies. One potential solution may be found in the Debt
Collection Improvement Act, which provides that when forced collections
“interfere substantially with or defeat the purposes of the payment
certifying agency’s program” the head of an agency may request from the
Secretary of the Treasury an exemption from forced collections.
Given the data findings above, such a request for relief from the
Commissioner of the Social Security Administration on behalf of Social
Security beneficiaries who have defaulted student loans could be
justified. Unless the toll of forced collections on Social Security
beneficiaries is considered alongside the program’s stated goals, the
number of older adults facing these challenges is only set to grow.

Data and Methodology

To
develop this report, the CFPB relied primarily upon original analysis
of public-use data from the U.S. Census Bureau Survey of Income and
Program Participation (SIPP), the Federal Reserve Board Board’s Survey
of Household Economics and Decision-making (SHED), U.S. Department of
the Treasury, Fiscal Data portal, consumer complaints received by the
Bureau, and administrative data on borrowers in default provided by the
Department of Education. The report also leverages data and findings
from other reports, studies, and sources, and cites to these sources
accordingly. Readers should note that estimates drawn from survey data
are subject to measurement error resulting, among other things, from
reporting biases and question wording.

Survey of Income and Program Participation

The
Survey of Income and Program Participation (SIPP) is a nationally
representative survey of U.S. households conducted by the U.S. Census
Bureau. The SIPP collects data from about 20,000 households (40,000
people) per wave. The survey captures a wide range of characteristics
and information about these households and their members. The CFPB
relied on a pooled sample of responses from 2018, 2019, 2020, and 2021
waves for a total number of 17,607 responses from student loan borrowers
across all waves, including 920 respondents with student loans
receiving Social Security benefits. The CFPB’s analysis relied on the
public use data. To capture student loan debt, the survey asked to all
respondents (variable EOEDDEBT): Owed any money for student loans or
educational expenses in own name only during the reference period. To
capture receipt of Social Security benefits, the survey asked to all
respondents (variable ESSSANY): “Did … receive Social Security
benefits for himself/herself at any time during the reference period?”
To capture amount of Social Security benefits, the survey asked to all
respondents (variable TSSSAMT): “How much did … receive in Social
Security benefit payment in this month (1-12), prior to any deductions
for Medicare premiums?”

The public-use version of the survey dataset, and the survey documentation can be found at: https://www.census.gov/programs-surveys/sipp.html

Survey of Household Economics and Decision-making