Paying Off Student Loans With Your Monthly Social Security
Student loans. Social Security. They don’t seem to have any obvious links.
If you’re old enough to collect Social Security, the law that makes repaying student debt a federal government-backed obligation was not on the books when you went to college. Besides, Social Security income can’t be dunned by anyone for any reason. Those collecting Social Security always know this income will arrive in full once a month.
All this is obvious, right? Wrong!
There are now more than two million Americans, 60 and older, who are student loan debtors, and many are behind in their payments. Some of them owe this money because they went back to school in middle age to boost their resumes in hopes of landing new jobs. Some returned to school simply for personal enrichment. They ran up government-backed student loans in the process.
The largest number of these two million, however, were simply co-signers for their children’s or grand children’s college loans. The kids deserved a shot. They needed that sheepskin to get it. Their parents or grand parents signed the loan papers to make it possible and are now on the hook to pay it back if the kids or grand kids can’t — a situation not all that uncommon these days.
While most kinds of debt collection can’t touch Social Security income, debt to federal agencies (like the VA, for example) or debt guaranteed by the federal government (like student loans) can be dunned by the Treasury. In consequence, thousands of older Americans collecting Social Security are now finding that part of their monthly checks (up to 15 percent) are being withheld because of student loans that are in default.
Ain’t that a kick in the head. Sure, you sacrificed all those years to give young family members a leg up. Now, in addition, the income, often the only income, that keeps you going in old age is getting trimmed.
Yet another example of one generation’s interests being pitted against another generation’s interests. Welcome to the new America.
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So when Pa AND Grandpa comes to live with the youngsters all will be boss, right? A living preview of the Ryan budget implications.
So what did they think co-signing meant?
Hi Dr. J,
When you take out a loan with a loan shark and fail to pay the vig, they break your leg. That’s understood up front. But they don’t break your leg if you fail to pay a Citi credit card debt. That penalty for that failure is not an expected part of the deal.
The problem described in my post is hitting people who didn’t know where a co-sign could lead. They didn’t read the fine print because it wasn’t in the fine print, The “big print” in another contract, a social contract called Social Security, lead these people to think that in difficult times at least they could always fall back on a full Social Security check.
Ah, but that was just an Old America idea.
Michael, I just can’t get my head around your position. Being held to debts you agreed to take on seems like basic accountability, an even older, pre-American idea. Yet you’re against it?
Hi Dr. J.
What I’m against is bait-and-switch. People have always believed, been told, that however little their Social Security might be, it is theirs. Now it isn’t.
When those co-signings took place, believe me, no one said “oh by the way, if your kid doesn’t pay the debt, we can take away some of your Social Security payments…
Can I believe you? It’s not obvious how you’d know what disclosures accompanied these loans or who would assume SS is sacrosanct. It’s often taxable, for starters.
But how would you like it to work instead? Imagining there are 20 pages of paperwork accompanying one of these loans, would you like to require a 21st detailing potential impact on SS payments? Or would you rather make the loans uncollectable, forcing persons unknown to cover for these seniors? Or something else?
Hi Dr. J,
You make things sound difficult. They are simple. When a loan is being made whose collection payback is backed by the federal government, that fact should be told borrowers and their co-signers.
Just a line or two that must be initialed by borrowers and co-signers saying, in essence: I understand that failure to make payments on this loan, borrowers and co-signers might both be subject to the following penalties. Then have a short list of possible government actions and include dunning Social Security.
I don’t understand the first part of your comment above. Do you honestly think co-signers were ever warned that their Social Security might be dunned if their kids failed to make loan payments? That, to me, seems so incredible, that I need not have been present to know it never happened.
I don’t know what they were warned of, Michael. I know mortgages come with a ream of disclosures and signoffs, but I’ve never seen the paperwork that goes with a student loan.