Big Change Announced In Plan To Garnish Retiree Benefits

WASHINGTON, D.C. — Potentially hundreds of thousands were about to see their monthly Social Security benefits reduced as the Trump administration announced that it would resume collecting on defaulted student loans this month.

The U.S. Department of Education confirmed to multiple news outlets late in the day on Monday that the department is pausing that plan.

“The Trump Administration is committed to protecting Social Security recipients who oftentimes rely on a fixed income,” said Ellen Keast, an Education Department spokesperson, told CNBC.

The reprieve will spare retired student borrowers in default from having their benefit checks garnished by 15 percent.

Roughly 452,000 borrowers aged 62 and older are currently in default on federal student loans, according to data from the Consumer Financial Protection Bureau. Many of those individuals are believed to be receiving Social Security income.

Nationwide, nearly 3 million people in that age group now hold federal student loans — up 71 percent from 2017, when the number stood at 1.7 million, according to the U.S. Department of Education.

According to the National Consumer Law Center, many borrowers are parents who once co-signed loans or took out Parent PLUS loans for their children. Many of them fell behind on payments due to job losses, medical expenses and other hardships.

There are currently 3.6 million people with Parent PLUS loans and 25 percent of them are age 60 or older.

"A significant portion of today’s parent borrowers are very low-income and are struggling with repayment," the center said.

If Trump's policy had been put on pause, the federal government could have seized a portion of a retiree's Social Security benefits to collect on the debt, according to the center.

What's more, the resumed collection would have given borrowers little advance notice, experts say. Previously, the Education Department provided a 65-day notice before garnishing Social Security benefits.

That policy has been dropped, according to higher education expert Mark Kantrowitz, who told NBC News that the department now assumes borrowers received adequate notice before the pandemic.

“The failure of the U.S. Department of Education to provide the 65-day notice limits the ability of borrowers to challenge the Treasury offset of their Social Security benefit payments,” Kantrowitz said.

Consumer advocates say the policy puts older Americans at risk of deepening poverty. A recent CFPB report found that half of borrowers in this group had skipped medical appointments or gone without necessary prescriptions due to financial strain.

“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 report stated.

What To Do If You Are Facing Collection

Borrowers who find out that their SSI benefits will be offset have the option to contest the collection, Kantrowitz told NBC.

If retirees can prove a financial hardship or have pending student loan discharge, the collection may be prevented or postponed.

“Borrowers who receive these notices should not panic,” said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program, told NBC. “They should reach out for help as soon as possible.”

Why Is This Happening Now?

The authority to claw back Social Security benefits from retirees was paused during the COVID-19 pandemic and extended under the Biden administration.

It appears to have been reinstated and paused again. It is unclear how long the policy will remain paused. No other information was immediately available.