Student loans are for those in their 20’s, right? Social Security, on the other hand, is for those in their 60’s. Right again. However, according to data compiled by the Treasury Department, the federal government is withholding money from more and more Social Security beneficiaries who have fallen behind on their federal student loans.
Smart Money magazine reports that the government reduced the benefits of roughly 115,000 Social Security recipients through the first seven months of 2012 . . . more than double the rate of last year.
Can they really do that?
The answer is yes, they certainly can. In fact, the federal government has the power to grab those defaulted payments in a number of ways: the IRS can intercept any income tax refund you think you have coming; the government can garnish (without any legal action or judge’s order) up to 15% of your disposable income; and they can seize student loan payments from federal benefits, including Social Security retirement and Social Security disability. Furthermore (in case you were wondering) federal student loans cannot be erased via bankruptcy.
Most of these Social Security recipients are not being penalized for their own educational loans – the majority have taken out loans to help children, grandchildren or other dependents defray their college expenses. But the bottom line is true for all who sign for federally subsidized student loans: Uncle Sam will stalk you the rest of your life until you get it paid.
Rethinking Student Loans
I realize that many have used students loans as a means to a very successful end: helping fund the education needed for their career. However, too many have bought into the “good debt” mindset of student loans, justifying debt without limit because they perceive this debt to be good. Yes, student loans are better than credit card or payday loans, but debt is nevertheless debt, and “good debt” (even student loan debt) is an oxymoron. I doubt if these Social Security beneficiaries can see much good in a debt that is taking a bite from their retirement incomes.
What You Should Do
- If you have student loan debt, declare war on it today. It will hang around for decades if you don’t attack it. Remember, you will pay this debt sooner or later. Make it sooner.
- If you are considering student loan debt, think creatively about other ways to fund your education. Need some ideas and encouragement? Check out 10 Tips on How to Graduate from College Debt Free.
- If you are a parent or grandparent who is considering going into debt for your children or grandchildren, think again. Don’t count on Junior repaying you . . . he may, but, unfortunately, he may not. A better plan is to avoid the debt by simply cash flowing monthly subsidies directly to your student’s college expenses. After all, if you can afford to make loan payments, you can afford to make monthly contributions. If you can’t afford to help on a monthly basis, you can’t afford to borrow money.
Student loans have helped many pay for their educations, but they have a dark side: your government knows where to find you, and if you owe them money, they will. Avoid those future hassles by avoiding the debt today.
Do you consider student loans to be “good debt”? Please explain. If you currently have student loan debt, do you regret borrowing as much as you did? Any tips for those who are considering student loans? Leave a comment below!