The Trump administration has reversed one of its most controversial measures: to seize Social Security checks from those with unpaid student loans.
The Department of Education confirmed that it will not withhold these benefits for now, amid growing criticism and concern about the economic impact on senior citizens.
“The Department has not offset any Social Security benefits since it resumed collections on May 5 and has suspended any future offsets”, stated Ellen Keast, spokesperson for the Department, in remarks reported by the U.S. press.
Why is this decision important?
This measure represents a relief for hundreds of thousands of retirees.
According to the Consumer Financial Protection Bureau (CFPB), more than 450,000 borrowers over the age of 62 are currently in default on their federal student loans.
Many of them rely on their monthly Social Security check to cover their basic needs.
In many cases, 90% of these retirees' monthly income comes from that benefit.
The withholding of up to 15% of that amount—allowed by federal law—could drive many into extreme situations, such as having to choose between paying for medicine or buying food.
“Losing a portion of their Social Security benefits to pay student loans could mean not having enough for food, transportation to medical appointments, or other basic needs,” warned Carolina Rodríguez, director of the Student Debt Consumer Assistance Program, in an interview with CNBC.
What caused this change?
The pause comes after an announcement made in April by the Trump administration, which stated that the collection of defaulted student loans would resume starting May 5, after having been suspended since March 2020 during the pandemic.
The resumption included automatic wage garnishments, tax refunds, and federal benefits such as Social Security.
However, the protests by debtors' rights advocates, civil organizations, and legal experts prompted the government to reconsider—at least partially—its stance.
"Simply suspending this collection tactic is unfortunately insufficient.", stated Persis Yu, director of the Student Borrower Protection Center, in remarks gathered by CBS News.
"Any ongoing effort to reactivate the government's debt collection machinery is cruel, unnecessary, and will further fuel the economic chaos for working families across the country," he added.
What will happen with the rest of the charges?
Although the Social Security garnishment has been suspended, the Department of Education will continue with other forms of coercive collection, such as the withholding of tax refunds and wage garnishment.
The federal student loan portfolio amounts to 1.6 trillion dollars, and the government has reaffirmed its intention to recover at least part of that amount.
This means that while retirees can breathe a sigh of relief for the moment, millions of other borrowers remain exposed to severe financial consequences.
Many of them have seen how their payment plans have been blocked, their credit affected, or they cannot easily access income-based payment options.
A system lacking resources
Several former officials from the Department of Education and public policy experts have noted that the current system is not equipped to fairly and effectively manage the volume of individuals in arrears.
In recent months, there have been staff reductions in the offices responsible for assisting borrowers.
"If you are going to state that people must fulfill their obligations, you must ensure that the department is capable of managing its interactions," said A. Wayne Johnson, who was the Chief Operating Officer of the Federal Student Aid Office.
For her part, Betsy Mayotte, president of the Institute of Student Loan Advisors, noted that she has received multiple complaints from individuals who are unable to reach the Default Resolution Group.
The lack of concrete support can cause borrowers to lose the few opportunities that exist to overcome default.
A debt that ages with the country
For years, the face of the student loan borrower was that of a young college graduate.
However, today the debt is also aging.
The group of individuals over 60 years old is the fastest-growing among debtors, with over $125 billion owed.
In 2001, about 6,200 people had their Social Security checks garnished due to this debt.
By 2019, the number skyrocketed to over 192,000, according to the Consumer Financial Protection Bureau (CFPB).
This phenomenon is partly explained by the rising costs of university education, which has led many individuals to take on debt to finance their own studies or those of their children. Upon reaching retirement, these debts remain outstanding.
What comes next?
Keast assured that in the coming weeks, the Department will launch a proactive communication campaign with beneficiaries of Social Security in arrears, to inform them about affordable payment plans and rehabilitation programs.
However, no details have been provided on how it will be implemented or when it will begin.
Meanwhile, more than six million borrowers face damage to their credit history, according to court documents cited by the SBPC. And millions more are still unaware if they will receive real support to stay out of default.
The Trump administration's decision to lift the embargo on Social Security benefits for collecting defaulted student loans represents a temporary relief for hundreds of thousands of seniors.
However, it leaves many unresolved questions and does not protect the majority of debtors, who continue to face garnishments and credit consequences.
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