Student Loan, Meet Social Security: Seniors Still Stuck with School Debt

Student DebtThe rising student debt crisis is hardly news: With hiring slow and tuitions high, the financial outlook has been bleak for many young college grads for quite a while. But according to some analysts, the college loan crisis has moved well beyond fresh-faced Gen Y'ers. Now, an older cadre is finding itself buried under the weight of unserviceable loans.

And, unlike college grads in their twenties, these older borrowers don't have a lifetime to pay off their debt; in fact, as recent stories have shown, a growing number of borrowers are facing garnishment of their Social Security checks to pay tuition debts that are decades old.

The idea that Social Security benefits could be seized to pay for student loan debt seems laughable, but the Debt Collection Improvement Act of 1996 made it possible. Social Security beneficiaries receive a $750 cushion, but up to 15% of funds above that line can be seized to pay down debts, including student loans. What's more, student loan debt has no expiration date and can't be discharged in bankruptcy, which means that graduates could, conceivably, have their retirement funds raided decades after they left school.

Of course, most student loans are paid off long before the recipient reaches old age. However, a recent report by the Federal Reserve Bank of New York stated that almost a third of student loan debt is held by people aged 40 and over, and 4.2% -- roughly $42 billion -- is held by people over the age of 60. Some of this loan debt is the result of cosigning -- grandparents or other elder relatives helping family members borrow for college. But many loans were taken directly by this older students, a result of our nation's long-term employment problems. Thanks to the downturn, large numbers of older students have returned to school in search of degrees and certifications to help them escape the bleaker corners of today's job market.

In the wake of the Great Recession, the problem has grown. As Reuters' Mitch Lipka recently reported, student loan debt among students aged 35 to 49 increased by 47% over the last three years, making them the fastest-growing group of borrowers. And with the average loan burden increasing from $9,000 to $12,000, this group is, effectively, playing a high-stakes game of roulette, betting that their wages will grow significantly before they hit retirement.

One thing that could help keep student loan debt somewhat more manageable is the extension on the 3.4% Stafford loan rate, a proposal supported by both President Obama and his Republican challenger Mitt Romney. However, opponents -- including Senate Republican leader Mitch McConnell -- have questioned how the proposed low rate would be funded. McConnell, in fact, argued that any extension of the low Stafford rate would be funded "by raiding Social Security and Medicare," a charge that would apparently leave elderly borrowers between a rock and a hard place. Most legislators, however, agree that McConnell's claim is false.

There are several proposals afoot to get student loan debt under control, but in the current political climate, it appears that there's no solution in sight. Meanwhile, student borrowers, both young and old, continue putting their money on the education roulette wheel, hoping that their winning number will come up.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at, or follow him on Twitter at @bruce1971.

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Consolidating student loans helps. Also, pay more than the min due whenever and wherever you can.

September 14 2013 at 4:37 PM Report abuse rate up rate down Reply

If you take out a loan you have to pay for it but with Parent Plus loans at 8% interest rate - I will never see my Social Security check and the $175,000 in debt will be almost $ 500,000 at this interest rate by the time it is paid off - if I live that long! - The interest rate is ridiculous when you can't even earn 2% anywhere. To try to give your child an opportunity to get a decent job...yeah what job???????

May 29 2012 at 11:27 PM Report abuse rate up rate down Reply
3 replies to katsms's comment

Not Me! Smartest thing I did was go into the military at age 17, complete my HS diploma, attend colleges while in the military and, prior to retiring at age 41 (24 years service), have two MBA's in place. Now, 22 years later, I again retire from the county I have worked for, with another retirement at age 63. Life is great! I am now receiving more take home pay (about 20% more) that I did when fully employed.

May 29 2012 at 11:26 PM Report abuse +1 rate up rate down Reply

Taking out a student loan was the worst mistake of my life. Things happened in my life that made it not possible to finish my education along with disability, age, and the economy has made it impossible to find a job. WATCH OUT! A school loan can destroy your life, your credit and your retirement.

May 29 2012 at 10:58 PM Report abuse +1 rate up rate down Reply

"Social Security beneficiaries receive a $750 cushion, but up to 15% of funds above that line can be seized to pay down debts, including student loans."
If you owe money on a student loan, it doesn't matter how long ago you were in school. A 2005 U.S. Supreme Court case (Lockhart v. U.S.) determined there is no statute of limitations on Social Security offsets to repay student loans. The government can shave off up to 15 percent, provided your remaining monthly benefit doesn't drop lower than $750.

Read more: Can Social Security Be Garnished? |

May 29 2012 at 10:35 PM Report abuse +1 rate up rate down Reply

Its not just a bank program it is also a school program. The rising tuition does not fall on the schools. it falls upon the students. Every year upper learning keeps pushing for higher tuitions and every year they seem to get it. I notice that there also seems to be a larger sports system that falls into the catagory also. I thought college was there to learn first and formost and sports were a way of release of scholastic pressure. You sure could pay for a whole hell of a lot of schooling with the millions and millions devoted to sports. There is no in hell you can convince me other wise. The sad thing is a whole bunch of degrees out there with out a job and one hell of alot of debt. I look at college like going to a car lot and the car selection like the schools. You have a Mercedes taste but a used Toyota budget.

May 29 2012 at 9:51 PM Report abuse rate up rate down Reply

Student loans are the newest bank scam. If there were no loans schools would have to charge less or be empty.

May 29 2012 at 9:33 PM Report abuse -1 rate up rate down Reply

another debt? after working all of my life, first the stimulus, now this?

May 29 2012 at 9:30 PM Report abuse rate up rate down Reply

don't borrow if you can't pay it back.

May 29 2012 at 9:09 PM Report abuse +3 rate up rate down Reply

They aren't "stuck with it", they borrwed it, they owe it. Pay it back before your old, otherwise don't borrow it.

May 29 2012 at 8:55 PM Report abuse +3 rate up rate down Reply