Social Security And Student Loans

Social security is a contribution by the borrower to the government that confers entitlement to receive future benefits. It shows up on tax returns. Learn more about social security, social security garnishment, how you can save your social security payments, and much more.

Updated by Priya shah on 23rd January 2020

A student loan is a type of loan designed for the graduates and undergraduates that will help them pay their students tuition fees and other associated fees like stationery, tuition, hostel, and others. It differs from other types of loans completely with the lower rate of interest and the repayment schedule may differ from other loans. 

Federal student loans are funded by the government to help students to pay for their tuition and other expenses like stationery,  hostel, food costs and all. All you have to do is fill FAFSA form and submit to the U.S department of education. The federal student loan is very different than other loans which provide the lowest rate of interest than other loans with a number of benefit options.

A private student loan can be applied at any time and use the loan proceeds towards any college expenses, including tuition, room stationery, transportations, and others. Private student loan has an easy application process that can be applied online by phone also. The loan funds are made available immediately upon approval.

Although federal student loans are more affordable than private student loans. Qualifying for federal student loans is comparatively difficult than private student loans. Credit history, grades, and financial need are the eligibility criteria that can qualify you for federal direct unsubsidized loans. But there are limits on the amount you can borrow each year.

Social security is a contribution by the borrower to the government that confers entitlement to receive future benefits. Those payments are usually earmarked as social benefits that are often paid to those institutions of general government that provides benefits overall. 

Social security payments can be garnished if by chance you default on federal student loans. Due to federal student loan debt, many people are loosing out on social security benefits. 

Social security benefits show up on their tax returns depending on the size of other income, which could still result in payments owned under the income-driven plans.

Yet there is a limit on how much amount for a student loan can be garnished, though these limits don’t go far enough. The upshot is that if you derive most of your income from social security you don’t have to pay off your student loans. All federal student loans are eligible for an income-based repayment plan, including parent plus loans and loans in default.

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Can student loan debt threaten your social security payments?

If you default on federal student loan the government may not wait until you are nearing retirement age to recoup the debt. Also, the government may take extreme ways to get the loan amount back. Your employer can withhold your pay and the IRS can seize your federal tax refund citizens can be put into unpaid loans. Depending on the situation and loan type you may get the state tax refund as well.

After you reach nearby retirement, the government is likely to garnish your social security benefits. This has been affecting many borrowers over the years, which includes students also. Most of the people rely completely on social security benefits to make their retirement easier. Garnishment reduces its benefits and may not have enough money.

But there is a limit on the student loan on how much amount can be garnished. Also, the retirees who depend on social security income,  garnishment could make them financially unsafe.

Social security garnishment limit

As per the debt collection improvement Act of 1996, there is a limit that the government has set on how much social security benefits can garnish in order to collect the student loan debt.

Debt collection act has set and it cannot be charged more than 15% of your social security payments. Well, this limit is not more than enough for the people to give enough security payments. After the last time, the limit was adjusted and the cost of living has increased. The poverty line has gone up. The poverty threshold for a person household is $12490 annually. The government can get down the social security benefit to $9000 annually.  Reducing social security payments for the Americans have to subsist off an income that’s below the poverty line.

If you are already in the category of the default of the federal student loan that can end you up to giving 15% of social security benefit. these social security repayments increased more for senior Americans that are above 50 than the younger. Social security repayments increased more for senior Americans above the age of 50. The offsets jumped 407% among the 50 to 64 years and 540% for  65 years and above.

Most borrowers whose social security money was seized they were receiving the disability benefits, rather than retirements survivor benefits. The offset badly affected the poorest social security recipients and moreover the Americans with social security below the medium benefit, the offset must not reduce social security below $750 per month.

But most of the money carved from social payments don’t pay the loan principle also. 

As per data of 2016, $1.1 billion was garnished from benefits where more than 70% amount had gone to pay the fees and interest, rather than the actual debt.

Those effects were more pushing people down to the poverty line. 

That may be because a good number of people are unknown about the options that are available to them in order to prevent or stop the seizure of their benefits. 

How people can save their social security payments?

Borrowing the student loan comes with various terms and condition and give certain rights to a borrower that a borrower should definitely know. A borrower with a long term medical condition can also qualify for full social security payments. A borrower with exceptions like long term medical conditions can qualify for social security payments. You can discuss your concern with a free or low-cost financial counselor who can actually customize options based on your situation.

Facing the federal student loan default or offset  you can appeal to the department of education and hence follow some of the remedies that will help to save your  social security payments:

  • Constantly be in the contact of the loan servicer before going into default so you can modify your payments to smartly avoid it.

  • As based on your income you can make nine on-time payment in 10 months to the debt collector in order to cure the loan.

  • Also, you can seek for a financial hardship exemption through the department of education using the request to stop or reduce offset of social security benefits.

  • Get a total and permanent disability discharge. For more information on a loan discharged because of total permanent disability to request a discharge application, you can visit the total and permanent disability discharge.

What can be done to avoid student loan default?

Federal student loans always come with a number of benefits unless you must know the ways to use it properly. Federal loans never go away, and the government has wide-reaching power to collect. whenever you fail to make a student loan payment, and considered to default. To get out of the default you need to catch up on payments. 

You also can enter various programs with the department of education.

In order to avoid defaulting on your student loans, it is advised to be well aware of all your student loan repayment options. There are a number of options out there that you can take advantage of and use. These options calculate your monthly payments to be made based on your discretionary income and family size which makes the payments more affordable.

To avoid default you can set up an income-based plan with manageable payments. After the payments made you must be able to consolidate your student loans. Student loan consolidation can make your monthly payment easier to pay and also save some amounts.