DOMINIC GWINN\/Getty Images <\/p>\n
Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.<\/p>\n
For millions of older Americans relying on Social Security to cover their bills, another financial gut punch may be on the way \u2014 and it\u2019s coming from their own student debt.<\/p>\n
The Trump administration has threatened, then revoked threats, to resume collections on federal student loans. A higher education expert, Mark Kantrowitz, told CNBC that if the administration proceeded with their initial plans, borrowers in default could see their Social Security benefits docked by as much as 15%.<\/p>\n
There are approximately 452,000 borrowers aged 62 or older with defaulted loans, some of whom are likely receiving Social Security benefits, according to a report from the Consumer Financial Protection Bureau.<\/p>\n
The government has long had the power to garnish, or claw back, a portion of Social Security benefits to repay defaulted federal student loans.<\/p>\n
But those collections were paused during the COVID-19 pandemic, and remained paused under the Biden administration. Now, the Trump administration has threatened to resume collections.<\/p>\n<\/p>\n
In May, the Department of Education announced it would soon resume involuntary collections, only to walk back the decision in June, when department spokeswoman Ellen Keast told CBS News it had \u201cput a pause on any future Social Security offsets.\u201d<\/p>\n
It remains to be seen whether that pause will be indefinite.<\/p>\n
If you\u2019re in default on loans, the federal government could theoretically withhold up to 15% of your monthly Social Security benefit without your permission. But that would be the worst case scenario, and at least part of your benefits would remain.<\/p>\n
Federal law protects the first $750 per month of Social Security income from garnishment. But for seniors already scraping by, even a small deduction can have a devastating impact. Of the 1.3 million Social Security beneficiaries with student loans, about 37% rely on an average monthly benefit payment of $1,523 for 90% of their income, according to the same Consumer Financial Protection Bureau report.<\/p>\n
Story Continues <\/p>\n
Regardless of whether the administration ultimately goes ahead with its collections, the threat should serve as a crucial wake-up call for anyone struggling with debt repayment.<\/p>\n
Read more: Rich, young Americans are ditching the stormy stock market \u2014 here are the alternative assets they’re banking on instead<\/a><\/p>\n If you\u2019re in default or nearing default, there are steps you can take now to reduce the risk of garnishment.<\/p>\n First, you may be able to ask for a hearing or file a request to stop or reduce the offset. If you\u2019re facing medical issues, supporting dependents or already living below the poverty line, you can submit documentation proving financial hardship to the Treasury Department or its debt collection agency.<\/p>\n Second, you may be able to reenter good standing through loan rehabilitation or consolidation. Loan rehabilitation typically requires nine monthly payments, and the process can take several months. Both processes can stop wage or benefit garnishments.<\/p>\n Credible<\/a> can help with loan consolidation by letting you shop around for lower interest rates with just a few clicks of your mouse. In just two minutes you can compare and contrast\u00a0 lenders willing to consolidate your loans into one easy-to-manage payment.<\/p>\n Even if you’re just curious about your options, checking rates on Credible<\/a> could be a good idea. It won’t hurt your credit score, it\u2019s totally free and it could save you a bundle.<\/p>\n If you\u2019re still working and planning to retire soon, retiring while in student loan default might now be riskier than it once was. If your retirement income plan was built around a full Social Security check, you may need to take a two-pronged approach and rethink your savings and spending strategies.<\/p>\n With Wealthfront’s automated investing platform<\/a>, the power of compound interest works for you. Their sophisticated “set it and forget it” approach means your money is professionally managed and automatically rebalanced, allowing your wealth to grow steadily over time.<\/p>\n Start investing for the long term with globally diversified portfolios or go for a higher yield than a traditional savings account with an automated bond portfolio.<\/p>\n Open your account today and receive a $50 bonus<\/a> to jumpstart your investment journey. Whether you’re saving for retirement, a home, or building generational wealth, Wealthfront’s low-cost, automated investment strategy can help you achieve your financial goals.<\/p>\n As for spending, it can pay to cut monthly expenses where you can. One of the biggest line-items over time is insurance. Like with loans, shopping around for home and auto insurance rates can also help you cut costs.<\/p>\n With OfficialHomeInsurance.com<\/a> it takes just two minutes to comb through over 200 insurers for free and find the best deal for you in your area. The process can also be done entirely online<\/a>.<\/p>\n The best part? OfficialHomeInsurance.com users can save an average of $482 per year<\/a>.<\/p>\n Similarly, OfficialCarInsurance.com<\/a> can help you switch to a more affordable auto insurance option within minutes.<\/p>\n After answering a few questions about yourself, your vehicle and driving history, you can compare quotes from trusted brands like Progressive, Allstate and GEICO<\/a>. Depending on factors like the make and model of your car, you can find rates as low as $29 per month<\/a>.<\/p>\n