Starting June 2025, the U.S. government will begin deducting Social Security benefits from retirees who have defaulted on their federal student loans.
This move marks the end of a five-year pause on such collections, which was initiated during the COVID-19 pandemic.
What’s Changing?
The Department of Education has announced that it will resume collections on defaulted student loans. This includes withholding tax refunds, garnishing wages, and now, reducing Social Security payments.
The Treasury Offset Program (TOP) will facilitate these deductions, allowing the government to withhold up to 15% of a borrower’s Social Security benefits.
However, benefits cannot be reduced below $750 per month, offering some protection to low-income recipients.
Who Is Affected?
Approximately 452,000 Americans aged 62 and older are in default on their federal student loans and are at risk of having their Social Security benefits garnished.
Many of these individuals took out loans decades ago and are now facing financial hardship in retirement.
Legal Background
In 2005, the Supreme Court ruled in Lockhart v. United States that the government can offset Social Security benefits to collect on student loan debt, even if the debt is over 10 years old.
This decision provides the legal basis for the current actions being taken by the Department of Education.
Options for Borrowers
If you’re at risk of having your Social Security benefits reduced due to defaulted student loans, consider the following options:
- Income-Driven Repayment Plans (IDR): These plans adjust your monthly payment based on your income and family size.
- Loan Rehabilitation: Making nine consecutive, on-time payments can remove your loan from default status.
- Hardship Exemptions: If the garnishment causes financial hardship, you can request a review and potentially stop the deductions.
- Fresh Start Initiative: A temporary program that allows borrowers to get out of default and access repayment options.
It’s crucial to contact your loan servicer or the Department of Education’s Default Resolution Group to explore these options.
Political Response
In response to these developments, lawmakers have introduced the “Ending Administrative Wage Garnishment Act of 2025.”
This bill aims to suspend the government’s ability to garnish wages, tax refunds, and Social Security benefits for student loan collection. The legislation is currently under consideration in Congress.
Final Thoughts
The resumption of student loan collections through Social Security benefit reductions is a significant development affecting many retirees.
If you’re concerned about how this may impact you, it’s essential to stay informed and proactive in exploring available options to manage your student loan debt.