The U.S. Department of Education has restarted the collection of default student loans, ending a pause that lasted five years due to the Covid-19 pandemic. As of May 5, federal agencies are allowed to take income from borrowers who have defaulted, which includes wage garnishments, intercepting tax refunds, and a portion of Social Security benefits.
This change could impact around 452,000 Americans over the age of 62. According to the Consumer Financial Protection Bureau, many retirees might see a large reduction in their monthly Social Security payments, dropping to as low as $750 in some instances.
From $1,883 to $750: A sharp drop in protected income
Policies suggested during the Biden administration aimed to protect up to 150% of the federal poverty level—about $1,883 per month—for borrowers on Social Security from student loan garnishments. Unfortunately, that protection was never put into practice.
Instead, the current rules revert to those from 1996, which only protect the first $750 of a retiree’s monthly Social Security income. Experts warn that this could affect up to 15% of total benefits, and importantly, the $750 amount is not adjusted for inflation—meaning it’s significantly below the federal poverty line.
Why did $750 no longer cover the basics?
Back in 1996, $750 was seen as a reasonable amount for a single retiree to live on, but today it’s about $400 more than the monthly poverty threshold, which is roughly $1,255. Just to put it in context, federal supplementary security income for low-income seniors is currently about $967 a month.
If the protections had been adjusted for inflation, they would be closer to $1,450 today. Retirees relying on Social Security might find themselves with less than what is needed to afford basic necessities, like housing or food.
How policy shifts happened
The Biden administration has been working to enhance protections for older borrowers. In the closing months of his time in office, Secretary of Education James Kvaal proposed raising the garnishment limit to $1,883, with annual adjustments for inflation. Such a change could have significantly alleviated or eradicated garnishments for many retirees.
However, the Trump administration did not move forward with this proposal and opted to reinstate the 1996 policy instead. The U.S. Department of Education stated that this decision aligns with the requirements of the Higher Education Act of 1965, accompanied by a broader push to collect all default loans.
Lawmakers are calling for reform
It’s still unclear whether this bill will find support. Meanwhile, retirees currently in default are encouraged to investigate alternatives like income-driven repayment plans and loan rehabilitation to avoid garnishments. The Federal Office of Student Aid has broadened its assistance for affected borrowers and extended the hours for its support lines.
