NEW YORK (MainStreet) — Social Security benefits are bullet proof. You can't lose them, no one can take them away.
Except the federal government.
"It used to be against the law to garnish Social Security benefits to pay debts," said Maggie Thompson, campaign manager for the Higher Ed, Not Debt initiative at theCenter of American Progress. "That’s because Social Security is an earned benefit and a backstop against poverty.”
But Thompson points to a 1996 law that changed all that. “Hundreds of thousands of seniors are having huge chunks taken out of their checks to pay their students loans from the Department of Education (ED)," she says. Those loans run the gamut from co-signed obligations used to fund the education of children and grandchildren or--increasingly--to pay for their own forays into higher ed.
Borrowers run the gamut also, from seniors who took a swing at second careers through vocational courses at for-profit colleges to grad school lifers stuck in the all-but-dissertation straightjacket. Taken together, they compromise a significant number of Social Security recipients—and people with student loans.
"Today, over 700,000 people relying on Social Security are still paying their student loans," said Thompson. "Over 160,000 Social Security beneficiaries have their monthly checks garnished to pay off federal student loans. Until 1996 it was against the law to garnish Social Security benefits to pay debts, but that protection was stripped for debts owed to the Federal government."
Higher Ed, Not Debt says that the same law, the Debt Collection Improvement Act, gives the Department of Education (ED) the option to remove or withhold a garnishment order.
”It doesn’t even require an act of Congress,” Thompson stated. “The Department of Education can declare a moratorium on garnishing Social Security benefits for student debt. We can make this happen—and bring relief to the many Social Security recipients still struggling to repay their student loans.”
Social Security says on the FAQ page of its website that Sec 207 of the Social Security Act protects benefits from Federal garnishment but with some exceptions--and one of them gives Uncle Sam the right to "withhold and pay another federal agency for a non-tax debt you owe to that agency" according to 1996 Debt Collection Improvement Act. ED would be one of those federal agencies.
However, Chapter 10 of the Debt Collection Improvement Act, Sec. 31001 states, "Payments (including student loans) certified by the Department of Education under Title IV of the Higher Education Act of 1965 shall not be subject to administrative off-set under this subsection."
There seems to be several shades of gray here. But the punch-line is that if the power to exercise an “administrative set-off”--which is where they grab your money--lies with the Treasury Department, then ED’s hands are tied. That's the status quo according to an ED source.
"That law generally requires agencies, including ED, to refer delinquent or defaulted debt to the Department of the Treasury offset program,” said the ED source who asked not to be identified. "Treasury may then collect that debt by offsetting from most government payments, including tax refunds and Social Security benefits from the Social Security Administration." People on Supplemental Security Income who are disabled, blind or elderly are totally protected without exception.
”Under the Debt Collection Improvement Act of 1996, the Department of Education does not have the authority to establish a moratorium on garnishing Social Security benefits,” the ED source continued. “The Act requires us to send most defaulted student loan debt to the Treasury Department for potential offset against payments from the Federal government. We do not select which payments are eligible to be offset. This determination is made by the Department of the Treasury.”
But there is an exempted amount of $750 or 15% of the total monthly benefit--whichever is higher—that can’t be taken in a garnishment--an exemption which ED and Treasury honor. There is also an increase in that exemption in the Obama administration’s 2016 proposed budget. Whether it will get through Congress unscathed--or at all--is unclear.
"The $750 exemption was not indexed for inflation and, as a result, it no longer provides the protection from poverty it did when enacted almost 20 years ago," the ED source stated. "The 2016 budget proposes that debt owed to the federal government, including student loans, be indexed to inflation so that low income borrowers are protected by the threshold amount.”
The best case scenario would be an increase in the amount of funds that are exempted from a treasury set-off. Meanwhile, Social Security garnishments to pay for federal student loans are expected to continue.
Jeffrey Schramek, assistant commissioner for debt management service at the Treasury Department, did not respond to a request for comment.