For retirees, there are protections in place to help keep your Social Security and VA benefits secure. However, if you default on federal student loans, those protections might not help. The government can take money directly from your wages (if you’re working), Social Security payments, and tax returns. And unlike private creditors, the federal government doesn’t need to sue you and get a court order to start.
Perhaps it’s not much consolation, but you’re not alone if you’re struggling with Social Security garnishment due to student loans. In 2017, the Consumer Financial Protection Bureau (CFPB) reported that from 2005 to 2015, there was an increase from about 8,700 to 40,000 borrowers who are in the same situation.
Social Security benefit garnishment can be especially difficult for the many people who rely on this income to live. Fortunately, you have a few options that could help restore your full Social Security benefits.
Get Out of Default by Consolidating or Rehabilitating the Loans
The first step is to get the loan out of default. Aside from paying off the loan in full, you may be able to do this by either consolidating your federal student loans with a federal Direct Consolidation Loan or rehabilitating your loans.
To rehabilitate your loan, you’ll need to make nine on-time payments in a consecutive 10-month period. The payment amount will be 15 percent of your discretionary income, based on the difference between your income and 150 percent of the poverty guideline for your family size and state. If that amount is too high, you could request the loan servicer review the payment amount and, in some cases, it could lower the amount — possibly to $5 each month.
Although rehabilitation can take time, once you complete the process, your Social Security won’t be taken if you keep the loans from defaulting again. The default mark also gets removed from your credit reports, which could help your credit scores, but the late payments that led to the default will stay on your credit reports and could continue to impact your scores.
A different potential route is to consolidate your loans into a new, Direct Consolidation Loan — basically taking out a new loan and using the money to pay off your current loans. This option can be much quicker, as you can consolidate a defaulted loan once you make three consecutive full monthly payments.
Alternatively, you can consolidate your loans right away if you agree to repay the new loan with an income-driven repayment plan. If you have parent PLUS loans you have to use the income-contingent repayment plan after consolidating. Otherwise, you could pick between several plans.
Continue Making Payments on an Income-Driven Plan
Once your loan is out of default, an income-driven plan could make your monthly payments affordable and keep you from falling behind or winding up back in default.
The plans you can choose from depending on the type of loan you have (or the type of loan you originally before consolidating), but they all base your monthly payment on your discretionary income. The amount can range from 10 to 20 percent of your discretionary income, and your monthly payment amount could be as low as $0.
While your monthly payments might not cover the interest that accrues, they’re still on-time payments that keep your loans in good standing. Additionally, the balance will be forgiven after 20 to 25 years (depending on the repayment plan) of on-time payments if you stay on the income-driven plan.
What Happens to Federal Student Loans When a Borrower Dies?
If you’re faced with making minimum payments on the student loan without any clear path toward paying them off, you may worry about passing on the debt to your beneficiaries.
Fortunately, federal student loan debt is discharged when the borrower dies. Parent PLUS loans are also discharged if the student does. In either case, the loan servicer will need to be sent documents to prove the death before the discharge occurs.
See if You Qualify for Other Options
Rehabilitation and consolidation are two common and relatively straightforward ways to get out of default. However, borrowers who are struggling to repay student loans during retirement may qualify for alternative forms of relief.
- You may be able to get your student loans discharged if you’re totally and permanently disabled and unable to work.
- Some borrowers may be able to settle their loans by agreeing to pay a smaller lump sum.
- If your Social Security benefits shouldn’t have been taken in the first place, you may be able to stop the offset of your benefit and get the amount that was already taken back.
Understanding your rights and options can be difficult, particularly with all the complexities that come with student loans. If you’re looking for personalized advice, you may want to hire an attorney who specializes in student loan cases. Or, Money Management International has trained counselors who can help review your situation and explain your options.