Feds Withhold Social Security Benefits for Unpaid Federal Student Loans

No Social Security Benefits

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!

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  1. Kathleen K

    Student loans as well as the home mortgage are understandable debt…I understand why people do it. But unfortunately, reality is showing that no debt, including these two, is “good” debt. Look at the housing loan crisis, and now the student loan crisis.

    I am very thankful that neither my husband nor I have had to deal with student loans. Our parents sacrificed greatly for our educations. However, due to unemployment, savings for our own sons’ education has been minimal. Now I am preparing our boys to study hard while homeschooled, then to go to our local community college for at least 2 years and transfer to another university to finish their degree. No debt allowed.

    • Joe Plemon

      I like your phrase “understandable” debt. A great improvement on “good debt”, but we agree that “no debt” is the best kind of debt. Congrats for insisting on two years community college before transferring to another university. We did the exact same thing with our four kids. We didn’t quite insist on no debt, but my kids made it through with very little student loan debt, which has long ago been paid off.

  2. Stephen H.

    When I went to college I lived off of student loans for 5 years at about $12K-$13K per year. After I graduated I told friends and family that owed an H2 Hummer (about $60K) in student loans. Through college I honestly believed that once I graduated I would make plenty of money to pay off those loans in 5-10 years while living confortably. Reality was that my starting salary was enough to support a basic lifestyle without making any payments on the student loan debt. I graduated 7 years ago and still owe the $60k that I borrowed. I look back on college and realize I did a lot of things wrong. If I had it all to do over again, I would have worked more, studied more, and been a lot smarter with the money I had to work with. Hindsight is always 20/20.

    • Joe Plemon

      Thanks for your candor. I hope other readers can learn from your story.

  3. joe

    Better rethink junior going to college. Think working at Walmart as compared to becoming a school teacher. Working 4 years at Walmart will mean you earn $100,000 or so. Going to college 4 years on average leaves you $25,000 in debt after someone paid $80,000 for college. Get a teaching job for $40,000 and start paying off the debt. That will take you about 5 years. So, after 9 years, you are about even as if you worked those 9 years at Walmart. Then you could say that teachers get a pension. Well, that changed big time for those hired recently. OK, this is an over simplification. There are other better jobs to be sure. My son never went to college and at age 26 bought a house with $100,000 mortgage and he is single. His job is selling supplemental health insurance. I spoke to my dentist and he said he did not start making money until he was 38. He also says that he can never retire due to the crash. Do you think many people will be going to medical or nursing school with Obama Care being a certainty? That shortage is coming. Be sure to do your research.

    • Joe Plemon

      Thanks for sharing some insightful thoughts, but it all comes back to not mortgaging your life for a college education. Two years at a community college, work and pay as you go for the next two years and that education can start working for you right away.

      This being said, your closing thought: “be sure to do your research” is relevant regardless of college debt created.

    • joe

      I received my Jr. college degree 45 years ago. I had 64 hours credit and the U of IL transferred it as 66 hours. Nice. But things have changed.

      I just spoke to a young man starting college and suggested Jr. College. He said that the universities no longer accept the bulk of the Jr. College credit earned. He thought it was better to start at the university. I’m assuming his statement was accurate.

      I once took a 2 hour free college level computer course. If I wanted a grade, it would cost me $75. That was about 1999.

    • Joe Plemon

      Joe — We not only have the same first name, but we are about the same vintage…I received my A.A from Junior College 46 years ago. I was able to transfer most of my credits from a tiny Jr. College to a major engineering school, but it still took me another 2 1/2 years to get my B.S. My children took similar routes toward their four year degrees and had no problem getting the J.C. credits to transfer. In fact, one son earned a nice scholarship to a four year program because of his J.C. grade point average. This would have been around 10 years ago. But maybe things have changed, and those transferred credits are not as easily accepted at the University level. As you said in your first comment, “be sure to do your research”.

  4. Alan

    Great article! It has always been amazing to me how the government can exempt itself from the very laws that other companies have to abide by (like credit card and other unsecured debt CAN be included in a bankruptcy). But, non-the-less it is the world we live in and rules are rules. Good work on the “good” debt vs. “bad” debt, people get upset over gas going up 20 cents or milk going up a dollar but a $30,000 car loan…that’s ok. Keep up the good work!

    • Joe Plemon

      Alan–Right! When people start thinking in terms of “good debt”, they rationalize huge debt. That is not good!

  5. JP

    Joe –

    Wow. Thanks for this post. I had no idea. When you explain the background it makes complete sense, but wow.

    Amen to declaring war on student loans. I have a friend who recently launched a student loan startup (think Mint for student loans). I haven’t personally tried it but readers may want to check it out.


    Really attacking student loans is necessary. I think we’ve discussed this story before but check out this article from the NYT


    Student loans are one of the only kind of loans that you can’t get rid of in bankruptcy court.

    • Joe Plemon

      Thanks JP,
      I glanced at the tuition site, but didn’t really get into the workings of it. My philosophy, however, is to pay all loans off ASAP, so I am hoping this site doesn’t mollycoddle its users into stretching those loans out any longer than is absolutely necessary.

      Thanks also for the link to the article on the frustration of trying to get a student loan dismissed via bankruptcy. It further confirms the dark side of student loans.

  6. Ricki H

    I know this question may be hard enough to believe, but please bear with me. A few years back I enrolled in a trade school which got me a student loan. Shortly thereafter my father was diagnosed with cancer and he REALLY fell apart. I had to leave town abruptly and try to find some help for him, (and me too!). You see my father and I were the last two in our family still living so being with him totally consumed me. Flash forward to today and I am a 50 year old disabled woman on Social Security due to my own problems with cancer and numerous mental health issues to boot. I no longer have any paperwork – mental health and office skills have taken me some time to even begin to manage this. Social Security has docked my living allowance a few times to pay back my loan. They say how much they are taking but not how much is owed or how many times they are going to make this deduction. I’m still trying to find help with my health, let alone even knowing where to start with the loan. Mr. Plemon, would you happen to know of a place or two I should start? I would truly appreciate any ideas you may have.

    • Joe Plemon


      I am sorry to hear about your circumstances, but I agree that you need to learn the information (how much you owe, when the payments will be taken from your Social Security check, etc.) regarding your student loan debt.

      Because the payments are being taken from Social Security, I would start by talking to my local Social Security office. You will need to call and make an appointment (don’t simply show up or they will probably send you back home).

      But you might be able to learn about your loan through this web site: http://www.nslds.ed.gov/nslds_SA/

      Click the tab which says “Financial Aid Review”, then follow the menu. You will be required to give personal information, including SS number, but the site seems safe and should be of help.

      If neither of those options works, let me know. Perhaps some of our readers have suggestions…READERS: Jump in here if you can help Ricki.