Student Debt, the Gift That Keeps on Taking
More and more baby boomers are entering retirement with student loan debt taken out decades ago to pay for their own education. Many are finding it difficult to pay off that debt decades later. Fear not, the federal government has a way of making their retirement just that much more difficult.
Baby Boomers, who have already had their retirement savings savaged by artificially low interest rates, are having their Social Security payments garnished by the federal government to recoup millions in unpaid student debt.
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According to the Government Accountability Office, about seven million Americans 50 years of age and older owed about $205.0 billion in federal student debt last year.
The federal government has collected around $1.1 billion from Social Security recipients to go toward unpaid student loans since 2001. (Source: “Social Security Checks Are Being Reduced for Unpaid Student Debt,” The Wall Street Journal, December 20, 2016.)
In 2015 alone, the federal government collected (garnished) $171.0 million. Most of those affected in 2015 (114,000) were 50 years of age or older and receiving disability benefits. Roughly 38,000 of those having their Social Security garnished to pay off outstanding student loan debts were over the age of 64.
Federal Government Garnishing 10% of Monthly Social Security
The typical borrower ended up taking home (losing) about $140.00 less per month. On the surface, $140.00 per month may not sound like a lot, but the estimated the monthly Social Security benefit for all retired workers in the U.S. this year is $1,341. That $140.00 works out to 10.5% of their monthly income.
I say monthly income because few Americans have saved enough for retirement. Admittedly, $1,341 is not enough money to live on, but it’s all many retirees have. This means a lot of baby boomers, in general, face retirement with a lower standard of living. For those baby boomers entering retirement with student loan debt, the $140.00 garnishment of their social security has left thousands living below the poverty level.
It’s important to remember then, according to the most recent data, that approximately half of all working Americans are not offered a retirement plan by their employer. From 1999 to 2011, the percentage of American workers offered a retirement plan fell from 61% to 53%. (Source: “Americas’ biggest retirement fear: Running out of money,” Journal of Accountancy, October 6, 2016.)
Perhaps not surprisingly, as four million American’s retire each year, their biggest fear is outliving their money. 41% of retirees say money is their biggest concern. That even goes for high-net-worth earners.
Is Social Security Garnishment the Answer?
Garnishments are meant to help minimize the losses to taxpayers, who are, in the end, responsible for any unpaid debt on federal loans. Federal law prohibits student-loan borrowers from wiping their student loan debt in bankruptcy.
The laws were designed to prevent student loan borrowers from washing their hands clean of the debt after they graduated without making an effort to repay that debt. But some say the government’s tactics for getting that money back is too aggressive and, in many cases, targets those who have no chance in ever being able to repay that debt. Again, many retirees rely on Social Security as their main source of income.
Sadly, many baby boomers who attended university and college in the 1960s and 70s believed the American Dream was entirely attainable simply by obtaining a degree. However, as they (and current grads) are finding out, there are not a lot of secure, well-paying jobs out there for those that studied philosophy, English, and psychology. I’ve met more than a handful of baristas with a degree in economics too; so there’s no sure thing when it comes to university and landing a career either.
Even those that were able to find a job in their field of study may not have been able to earn enough to pay off their student loan debt and get ahead in life, by purchasing a home, car, etc.—everything Capitol Hill expects you to do to help keep the U.S. economy running.
Millennials with Student Loan Debt in Terrible Shape for Retirement
Now, no-one is saying that students, no matter what their age, shouldn’t be responsible for their debt load. There are steps you can take to get some relief from the garnishments; this includes applying for a disability waiver, applying for financial hardship, or consolidating your loan.
Baby boomers in default can even rehabilitate their loan with the Department of Education. Depending on the monthly income, under a loan rehabilitation agreement, the monthly repayment could be as low as $5.00. (Source: “Don’t get discouraged if you are at default with your student loan,” U.S. Department of Education, last accessed December 22, 2016.)
But baby boomers have been part of an experiment that they had no say in. In fact, chances are good that some of these baby boomers were in good shape for retirement before the Great Recession came along and the stock market tanked. And before the Federal Reserve initiated its trillion-dollar Quantitative Easing experiment; one that sucked “income” out of fixed income investing.
Retirement doesn’t exactly look bright for millennials either. The oldest millennials turn 35 this year; that means retirement is just 30 years away. Plenty of time to plan for retirement. That goal might be unattainable since a whopping 91% say they haven’t even started a retirement plan yet. (Source: “The scary truth about millennials and student loan debt,” Forbes, April 7, 2016.)
Keep in mind, their student loan debt is at record levels and chances are really, really good they’ll be in even worse shape than today’s baby boomers. Which is going to be a huge drain on the U.S. economy in the coming decades. Consider, 43% of millennials who have federal student loans are either behind on their payments or have just decided not to skip them, 37% of millennials do not know what the interest rate on their loan is, and 15% do not even know how much they owe!
With a lack of well-paying jobs, high underemployment, and glacial wage growth, the tip of the student loan debt iceberg is hiding a massive problem that is not going to go away by garnishing a baby boomers Social Security.
