Some individuals receiving Social Security might feel the pinch this week as payments are deposited into their accounts. It appears that certain beneficiaries of federal student loans could see their monthly payments affected due to ongoing efforts in the education sector aimed at collecting overdue payments.
Last month, the Treasury started issuing notices that put about 195,000 Social Security beneficiaries at risk of defaulting on their student loans. This falls under a program that allows the Treasury to recover debts through various means, including Social Security payments and tax refunds.
By summer’s end, the department expects to send out notifications to around 5.3 million borrowers who have defaulted. A student loan is labeled as in default after it remains unpaid for over 270 days—a period that can significantly impact one’s credit score or even lead to the seizure of assets.
This issue is particularly alarming for older Americans, as Social Security often serves as their main, or only, source of income. A report from the Consumer Financial Protection Agency indicated that about 452,000 people over 62 are currently defaulting on student loans.
The collection efforts have resurfaced following President Trump’s initiative to reform the education system. Although a recent court ruling blocked some aspects of these reforms, the collection of debts can still proceed.
If you recall, these collections were put on hold back in March 2020 when the Covid-19 pandemic began, and the pause was extended under the Biden administration.
The initial round of Social Security payments for June is set for June 3, with additional payments scheduled for the 11th, 18th, and 25th. It’s worth noting that federal law ensures protection for Social Security benefits up to $750 a month.
The Education Department encourages borrowers facing challenges with payments to reach out to the default resolution group for assistance on options available, including enrollment in income-driven repayment plans and loan rehabilitation.
