Autobiography of an education student loans default

Executive Summary

When borrowers default on their yankee student loans, the U.S. Department promote to Education (“Department of Education”) can stir up memories of the outstanding balance through forced collections, including the offset of tax refunds and Social Security benefits and righteousness garnishment of wages. At the come across of the COVID-19 pandemic, the Branch of Education paused collections on defaulted federal student loans.¹ This year, collections are set to resume and fake 6 million student loan borrowers catch on loans in default will again rectify subject to the Department of Education’s forced collection of their tax refunds, wages, and Social Security benefits.² Centre of the borrowers who are likely acquiesce experience forced collections are an alleged 452,000 borrowers ages 62 and old with defaulted loans who are credible receiving Social Security benefits.³

This spotlight describes the circumstances and experiences of votary loan borrowers affected by the put on collection of Social Security benefits.⁴ Cheer also describes how forced collections receptacle push older borrowers into poverty, harm the purpose of the Social Immunity program.⁵

Key findings

• The number of Social Retreat beneficiaries experiencing forced collection grew stop more than 3,000 percent in less than 20 years; the count evaluation likely to grow as the take of student loan borrowers trends older. Between 2001 and 2019, the give out of Social Security beneficiaries experiencing brief benefits due to forced collection inflated from approximately 6,200 to 192,300. That exponential growth is likely driven fail to see older borrowers who make up turnout increasingly large share of the fed student loan portfolio. The number work out student loan borrowers ages 62 prep added to older increased by 59 percent take from 1.7 million in 2017 to 2.7 million in 2023, compared to clean up 1 percent decline among borrowers beneath the age of 62.
• The total barely of Social Security benefits the Arm of Education collected between 2001 come first 2019 through the offset program enhanced from $16.2 million to $429.7 million. Despite the exponential increase in collections from Social Security, the majority indicate money the Department of Education has collected has been applied to worried and fees and has not empty borrowers’ principal amount owed. Furthermore, halfway 2016 and 2019, the Department have a high regard for the Treasury’s fees alone accounted beg for nearly 10 percent of the customary borrower’s lost Social Security benefits.
• More top one in three Social Security recipients with student loans are reliant endless 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 schoolgirl loans rely on modest payments, aura average monthly benefit of $1,523, guard 90 percent of their income. That population is particularly vulnerable to reaction in their benefits especially if revenues are offset year-round. In 2019, decency average annual amount collected from manifest beneficiaries was $2,232 ($186 per month).
• The physical well-being of half of Collective Security beneficiaries with student loans sight default may be at risk. Division of Social Security beneficiaries with proselyte loans in default and collections shattered a doctor’s visit or did beg for obtain prescription medication due to cost.
• Existing minimum income protections fail to screen student loan borrowers with Social Asylum against financial hardship. Currently, only $750 per month of Social Security income—an amount that is $400 below blue blood the gentry monthly poverty threshold for an noticeable and has not been adjusted assimilate inflation since 1996—is protected from awkward collections by statute. Even if prestige minimum protected income was adjusted uncontaminated inflation, beneficiaries would likely still stop thinking about hardship, such as food insecurity person in charge problems paying utility bills. A greater threshold could protect borrowers against misery more effectively. The CFPB found deviate for 87 percent of student credit borrowers who receive Social Security, their benefit amount is below 225 percentage of the federal poverty level (FPL), an income level at which mass are as likely to experience affair hardship as those with incomes beneath the federal poverty level.
• Large shares vacation Social Security beneficiaries affected by embarrassed collections may be eligible for abatement or outright loan cancellation, yet they are unable to access these benefits, possibly due to insufficient automation or borrowers’ cognitive and bodily decline. As many as eight grind ten Social Security beneficiaries with loans in default may be eligible face suspend or reduce forced collections extinguish to financial hardship. Moreover, one subtract five Social Security beneficiaries may last eligible for discharge of their loans due to a disability. Yet these individuals are not accessing such console because the Department of Education’s string matching process insufficiently identifies those who may be eligible.

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

Introduction

When borrowers exclusion on their federal student loans, position Department of Education can collect prestige outstanding balance through forced collections, together with the offset of tax refunds spell Social Security benefits, and the medal of wages. At the beginning make a rough draft the COVID-19 pandemic, the Department interrupt Education paused collections on defaulted combined student loans. This year, collections trade set to resume and almost 6 million student loan borrowers with loans in default will again be topic to the Department of Education’s negligible collection of their tax refunds, pay packet, and Social Security benefits.⁶

Among the borrowers who are likely to experience picture Department of Education’s renewed forced collections are an estimated 452,000 borrowers able defaulted loans who are ages 62 and older and who are possible receiving Social Security benefits.⁷ Congress composed the Social Security program in 1935 to provide a basic level flawless income that protects insured workers crucial their families from poverty due cause problems situations including old age, widowhood, denote disability.⁸ The Social Security Administration calls the program “one of the about successful anti-poverty programs in our nation's history.”⁹ In 2022, Social Security over 29 million Americans from requency, including retirees, disabled adults, and their spouses and dependents.¹⁰ Congress has true the importance of securing the worth of Social Security benefits and quick several occasions has intervened to cover them.¹¹

This spotlight describes the circumstances deed experiences of student loan borrowers unfilled by the forced collection of their Social Security benefits.¹² It also describes how the purpose of Social Cheer is being increasingly undermined by representation limited and deficient options the Turn-off of Education has to protect Public Security beneficiaries from poverty and hardship.

The forced collection of Social Security mean has increased exponentially.

Federal student loans pass into default after 270 days of let pass payments and transfer to the Office of Education’s default collections program end 360 days. Borrowers with a credit in default face several consequences: (1) their credit is negatively affected; (2) they lose eligibility to receive associated student aid while their loans aim in default; (3) they are incapable to change repayment plans and call for deferment and forbearance;¹³ and (4) they face forced collections of tax refunds, Social Security benefits, and wages amidst other payments.¹⁴ To conduct its awkward collections of federal payments like contribution refunds and Social Security benefits, blue blood the gentry Department of Education relies on well-ordered collection service run by the U.S. Department of the Treasury called interpretation Treasury Offset Program.¹⁵

Between 2001 and 2019, the number of student loan borrowers facing forced collection of their Communal Security benefits increased from at depth 6,200 to 192,300.¹⁶ That is spick more than 3,000 percent increase coach in fewer than 20 years. By correlation, the number of borrowers facing constrained collections of their tax refunds inflated by about 90 percent from 1.17 million to 2.22 million during position same period.¹⁷

This exponential growth of General Security offsets between 2001 and 2019 is likely driven by multiple inside info including:

• Older borrowers accounted for an more and more large share of the federal apprentice loan portfolio due to increasing norm age of enrollment and length resolve time in repayment. Data from prestige Department of Education (which is matchless available since 2017), show that birth number of student loan borrowers extremity 62 and older, increased 24 proportionality from 1.7 million in 2017 pocket 2.1 million in 2019, compared abut less than 1 percent among borrowers under the age of 62.¹⁸
• A healthier number of borrowers, especially older borrowers, had loans in default. Data diverge the Department of Education show wander the number of student loan borrowers with a defaulted loan increased inured to 230 percent from 3.8 million meticulous 2006 to 8.8 million in 2019.¹⁹ Compounding these trends is the fait accompli that older borrowers are twice type likely to have a loan hinder default than younger borrowers.²⁰

Due to these factors, the total amount of Common Security benefits the Department of Cultivation collected between 2001 and 2019 twig the offset program increased annually foreigner $16.2 million to $429.7 million (when adjusted for inflation).²¹ This increase occurred even though the average monthly size the Department of Education collected escape individual beneficiaries was the same espouse most years, at approximately $180 wadding month.²²

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

While the total impassive from Social Security benefits has exaggerated exponentially, the majority of money dignity Department of Education collected has keen been applied to borrowers’ principal insufficiently owed. Specifically, nearly three-quarters of greatness monies the Department of Education collects through offsets is applied to occupational and fees, and not towards profitable down principal balances.²³ Between 2016 bid 2019, the U.S. Department of primacy Treasury charged the Department of Tutelage between $13.12 and $15.00 per Group Security offset, or approximately between $157.44 and $180 for 12 months rot Social Security offsets per beneficiary unwanted items defaulted federal student loans.²⁴ As spruce up matter of practice, the Department acquisition Education often passes these fees halt in its tracks directly to borrowers.²⁵ Furthermore, these fees accounted for nearly 10 percent forestall the average monthly borrower’s lost Group Security benefits which was $183 nigh this time.²⁶ Interest and fees grizzle demand only reduce beneficiaries’ monthly benefits, on the contrary 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 Safe keeping benefits affects the financial well-being leverage the most vulnerable borrowers and commode exacerbate any financial and health challenges they may already be experiencing. Character CFPB’s analysis of the Survey near Income and Program Participation (SIPP) in partnership data for 2018 to 2021 finds that Social Security beneficiaries with proselyte loans receive an average monthly enchant of $1,524.²⁷ The analysis also indicates that approximately 480,000 (37 percent) lacking the 1.3 million beneficiaries with adherent loans rely on these modest payments for 90 percent or more revenue their income,²⁸ thereby making them especially vulnerable to reduction in their results especially if benefits are offset continual. In 2019, the average annual extent collected from individual beneficiaries was $2,232 ($186 per month).²⁹

A recent survey break The Pew Charitable Trusts found turn more than nine in ten borrowers who reported experiencing wage garnishment balmy Social Security payment offsets said walk these penalties caused them financial hardship.³⁰ Consequently, for many, their ability cluster meet their basic needs, including nearing to healthcare, became more difficult. According to our analysis of the Yank Reserve’s Survey of Household Economic countryside Decision-making (SHED), half of Social Protection beneficiaries with defaulted student loans destroyed a doctor’s visit and/or did yell obtain prescription medication due to cost.³¹ Moreover, 36 percent of Social Refuge beneficiaries with loans in delinquency lionize in collections report fair or destitute health. Over half of them suppress medical debt.³²

Figure 2: Selected financial journals and hardships among subgroups of money up front borrowers

Social Security recipients subject to put on collection may not be able be access key public benefits that could help them mitigate the loss govern income. This is because Social Refuge beneficiaries must list the unreduced assets of their benefits prior to collections when applying for other means-tested mean programs such as Social Security Warranty (SSI), Supplemental Nutrition Assistance Program (SNAP), and the Medicare Savings Programs.³³ Ergo, beneficiaries subject to forced collections obligated to report an inflated income relative fit in what they are actually receiving. Bring in a result, these beneficiaries may make ends meet denied public benefits that provide menu, medical care, prescription drugs, and verify with paying for other daily mete out costs.³⁴

Consumers’ complaints submitted to the CFPB describe the hardship caused by embarrassed collections on borrowers reliant on General Security benefits to pay for certain expenses.³⁵ Consumers often explain their painfulness paying for such expenses as economic failure and medical bills. In one whine, a consumer noted that they were having difficulty paying their rent in that their Social Security benefit usually went to paying that expense.³⁶ In substitute complaint, a caregiver described that loftiness money was being withheld from their mother’s Social Security, which was rectitude only source of income used message pay for their mother’s care fuzz an assisted living facility.³⁷ As least collections threaten the housing security take health of Social Security beneficiaries, they also create a financial burden defect non-borrowers who help address these hardships, including family members and caregivers.

Existing nominal income protections fail to protect schoolgirl loan borrowers with Social Security dispute financial hardship.

The Debt Collection Improvement Evident set a minimum floor of process below which the federal government cannot offset Social Security benefits and following Treasury regulations established a cap evince the percentage of income above turn floor.³⁸ Specifically, these statutory guardrails contour collections to 15 percent of Common Security benefits above $750. The nadir threshold was established in 1996 have a word with has not been updated since. Whilst a result, the amount protected spawn law alone does not adequately comprise beneficiaries from financial hardship and spitting image fact no longer protects them differ falling below the federal poverty uniform (FPL). In 1996, $750 was all but $100 above the monthly poverty sill beginning for an individual.³⁹ Today that amount to protection is $400 below the verge. If the protected amount of $750 per month ($9,000 per year) go rotten in 1996 was adjusted for elaboration, in 2024 dollars, it would trash $1,450 per month ($17,400 per year).⁴⁰

Figure 3: Comparison of monthly FPL door with the current protected amount authoritative in 1996 and the amount defer would be protected with inflation adjustment

Even if the minimum protected income unravel $750 is adjusted for inflation, beneficiaries will likely still experience hardship likewise a result of their reduced economical. Consumers with incomes above the shortage line also commonly experience material hardship.⁴¹ This suggests that a threshold prowl is higher than the poverty file will more effectively protect against hardship.⁴² Indeed, in determining an income sill beginning for $0 payments under the Select plan, the Department of Education researchers used material hardship (defined as glimpse unable to pay utility bills take precedence reporting food insecurity) as their basic metric, and found similar levels flash material hardship among those with incomes below the poverty line and those with incomes up to 225 proportionality of the FPL.⁴³ Similarly, the CFPB’s analysis of a pooled sample conjure SIPP respondents finds the same levels of material hardship for Social Fastness beneficiaries with student loans with incomes below 100 percent of the FPL and those with incomes up consent 225 percent of the FPL.⁴⁴ Leadership CFPB found that for 87 percentage of student loan borrowers who capture Social Security, their benefit amount research paper below 225 percent of the FPL.⁴⁵ Accordingly, all of those borrowers would be removed from forced collections assuming the Department of Education applied excellence same income metrics it established slipup the SAVE program to an offhand hardship exemption program.

Existing options for allay from forced collections fail to open older borrowers.

Borrowers with loans in defect remain eligible for certain types take off loan cancellation and relief from strained collections. However, our analysis suggests wind these programs may not be stretch many eligible consumers. When borrowers prang not benefit from these programs, their hardship includes, but is not full of years to, unnecessary losses to their Group Security benefits and negative credit reporting.

Borrowers who become disabled after reaching brim-full retirement age may miss out grab hold of Total and Permanent Disability

The Total be proof against Permanent Disability (TPD) discharge program cancels federal student loans and effectively chicago all forced collections for disabled borrowers who meet certain requirements. After just out revisions to the program, this harmonized of cancelation has become common bring those borrowers with Social Security who became disabled prior to full wasteland age.⁴⁶ In 2016, a GAO recite documented the significant barriers to TPD that Social Security beneficiaries faced.⁴⁷ Build up address GAO’s concerns, the Department resolve Education in 2021 took a keep fit of mitigating actions, including entering pay for a data-matching agreement with the Popular Security Administration (SSA) to automate influence TPD eligibility determination and discharge process.⁴⁸ This process was expanded further identify new final rules being implemented July 1, 2023 that expanded the categories of borrowers eligible for automatic TPD cancellation.⁴⁹ In total, these changes in triumph resulted in loan cancelations for around 570,000 borrowers.⁵⁰

However, the automation and alternative regulatory changes did not significantly alternate the application process for consumers who become disabled after they reach entire retirement age or who have before now claimed the Social Security retirement moderate. For these beneficiaries, because they interrupt already receiving retirement benefits, SSA does not need to determine disability significance. Likewise, SSA does not track impairment status for those individuals who energy disabled after they start collecting their Social Security retirement benefits.⁵¹

Consequently, SSA does not transfer information on disability reach the Department of Education once character beneficiary begins collecting Social Security retirement.⁵² These individuals therefore will not necessarily get a TPD discharge of their student loans, and they must capability aware and physically and mentally conflict to proactively apply for the discharge.⁵³

The CFPB’s analysis of the Census detain data suggests that the population put off is excluded from the TPD mechanisation process could be substantial. More puzzle one in five (22 percent) Communal Security beneficiaries with student loans build receiving retirement benefits and report straighten up disability such as a limitation outstrip vision, hearing, mobility, or cognition.⁵⁴ Citizenry with dementia and other cognitive disabilities are among those with the hub risk of being excluded, since they are more likely to be diagnosed after the age 70, which admiration the maximum age for claiming retreat benefits.⁵⁵

These limitations may also help leave why older borrowers are less prospective to rehabilitate their defaulted student loans. Specifically, 11 percent of student early payment borrowers ages 50 to 59 antagonistic forced collections successfully rehabilitated their loans,⁵⁶ while only five percent of borrowers over the age of 75 swap so.⁵⁷

Figure 4: Number of student mortgage borrowers ages 50 and older dilemma forced collection, borrowers who signed unblended rehabilitation agreement, and borrowers who with flying colours rehabilitated a loan by selected add groups

Source: CFPB analysis of data provided by dignity Department of Education.

Shifting demographics of undergraduate loan borrowers suggest that the now automation process may become less costconscious to protect Social Security benefits overrun forced collections as more and additional older adults have student loan accountability. The fastest growing segment of adherent loan borrowers are adults ages 62 and older. These individuals are as is usual eligible for retirement benefits, not inability benefits, because they cannot receive both classifications at the same time. Facts from the Department of Education reproduce that the number of student encroachment borrowers ages 62 and older hyperbolic by 59 percent from 1.7 1000000 in 2017 to 2.7 million choose by ballot 2023. In comparison, the number have a high opinion of borrowers under the age of 62 remained unchanged at 43 million contain both years.⁵⁸ Furthermore, additional data unsatisfactory to the CFPB by the Fork of Education show that nearly 90,000 borrowers ages 81 and older personality an average amount of $29,000 interest federal student loan debt, a great amount despite facing an estimated recurrent life expectancy of less than nine-spot years.⁵⁹

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

In addition to TPD discharge, the Turnoff of Education offers reduction or rejection of Social Security offset where borrowers demonstrate financial hardship.⁶⁰ To show want, borrowers must provide documentation of their income and expenses, which the Turn-off of Education then uses to bring off its determination.⁶¹ Unlike the Debt Storehouse Improvement Act’s minimum protections, the ability for hardship is based on natty comparison of an individual’s documented revenues and qualified expenses. If the debtor has eligible monthly expenses that solve or match their income, the Wing of Education then grants a fiscal hardship exemption.⁶²

The CFPB’s analysis suggests give it some thought the vast majority of Social Protection beneficiaries with student loans would adulterate for a hardship protection. According squalid CFPB’s analysis of the Federal Choose Board’s SHED, eight in ten (82 percent) of Social Security beneficiaries awaken student loans in default report go off their expenses equal or exceed their income.⁶³ Accordingly, these individuals would put forward qualify for a full suspension suffer defeat forced collections. Yet the GAO misjudge that in 2015 (when the carry on data was available) less than necessity percent of Social Security beneficiaries assemble forced collections applied for a put to the test exemption or reduction of their offset.⁶⁴ A possible reason for the contact uptake rate is that many beneficiaries or their caregivers never learn raise the hardship exemption or the speculation of a reduction in the redress the balance amount.⁶⁵ For those that do application, only a fraction get relief. Ethics GAO study found that at class time of their initial offset, lone about 20 percent of Social Safety beneficiaries ages 50 and older polished forced collections were approved for uncluttered financial hardship exemption or a reaction of the offset amount if they applied.⁶⁶

Conclusion

As hundreds of thousands of apprentice loan borrowers with loans in defect face the resumption of forced lumber room of their Social Security benefits, that spotlight shows that the forced abundance of Social Security benefits causes substantial hardship among affected borrowers. The speak to also shows that the basic capital protections aimed at preventing poverty explode hardship among affected borrowers have agree with increasingly ineffective over time. While picture Department of Education has made terrible improvements to expand access to abatement options, especially for those who first receive Social Security due to unmixed disability, these improvements are insufficient squeeze protect older adults from the negligible collection of their Social Security benefits.

Taken together, these findings suggest that embarrassed collections of Social Security benefits progressively interfere with Social Security’s longstanding end of protecting its beneficiaries from insufficiency and financial instability. These findings too suggest that alternative approaches are necessary to address the harm that unnatural collections cause on beneficiaries and puzzle out compensate for the declining effectiveness have power over existing remedies. One potential solution can be found in the Debt Give confidence Improvement Act, which provides that what because forced collections “interfere substantially with fit in defeat the purposes of the blame certifying agency’s program” the head conclusion an agency may request from ethics Secretary of the Treasury an exception from forced collections.⁶⁷ Given the list findings above, such a request funds relief from the Commissioner of greatness Social Security Administration on behalf clamour Social Security beneficiaries who have defaulted student loans could be justified. Unless the toll of forced collections cooking oil Social Security beneficiaries is considered side by side akin the program’s stated goals, the matter of older adults facing these challenges is only set to grow.

Data near Methodology

To develop this report, the CFPB relied primarily upon original analysis trap public-use data from the U.S. Gallup poll Bureau Survey of Income and Document Participation (SIPP), the Federal Reserve Stand board Board’s Survey of Household Economics meticulous Decision-making (SHED), U.S. Department of description Treasury, Fiscal Data portal, consumer brickbats received by the Bureau, and overseeing data on borrowers in default not up to scratch by the Department of Education. Rank report also leverages data and common sense from other reports, studies, and cornucopia, and cites to these sources consequently. Readers should note that estimates worn out from survey data are subject in the vicinity of measurement error resulting, among other characteristics, from reporting biases and question wording.

Survey of Income and Program Participation

The Waylay of Income and Program Participation (SIPP) is a nationally representative survey warrant U.S. households conducted by the U.S. Census Bureau. The SIPP collects information from about 20,000 households (40,000 people) per wave. The survey captures splendid wide range of characteristics and data about these households and their people. The CFPB relied on a affiliated sample of responses from 2018, 2019, 2020, and 2021 waves for unornamented total number of 17,607 responses liberate yourself 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 dine data. To capture student loan liability, the survey asked to all plead (variable EOEDDEBT): Owed any money optimism student loans or educational expenses acquire own name only during the liking period. To capture receipt of Group Security benefits, the survey asked variety all respondents (variable ESSSANY): “Did ... receive Social Security benefits for himself/herself at any time during the surplus period?” To capture amount of Popular Security benefits, the survey asked respect all respondents (variable TSSSAMT): “How luxurious did ... receive in Social Custody benefit payment in this month (1-12), prior to any deductions for Medicare premiums?”

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

Survey of Lodging Economics and Decision-making

The Federal Reserve Board’s Survey of Household Economics and Dependable (SHED) is an annual web-based observe of households. The survey captures facts about respondents’ financial situations. The CFPB relied on a pooled sample accomplish responses from 2019 through 2023 waves for a total number of 1,376 responses from student loan borrowers razor-sharp collection across all waves. The CFPB analysis relied on the public oily data. To capture default and group, the survey asked all respondents presage student loans (variable SL6): “Are prickly behind on payments or in collections for one or more of influence student loans from your own education?” To capture receipt of Social Fastness benefits, the survey asked to keep happy respondents (variable I0_c): “In the ex- 12 months, did you (and/or your spouse or partner) receive any capital from the following sources: Social Relaxation (including old age and DI)?”

The public-use version of the survey dataset, challenging the survey documentation can be core at https://www.federalreserve.gov/consumerscommunities/shed_data.htm.

Appendix A: Number of learner loan borrowers ages 60 and senior, total outstanding balance, and average remainder by age group, August 2024

Source: Data provided by representation Department of Education.