U.S. Government Garnishing Social Security Income of Seniors, Claiming Unpaid Student Loan Debt from Decades Ago

Ending one of the fiercest lobbying fights in Washington, Congress voted in March 2010 to force commercial banks out of the federal student loan market, cutting off billions of dollars in profits in a sweeping restructuring of financial-aid programs and redirecting most of the money to new education initiatives. The revamping of student-loan programs was included in — if overshadowed by — the final health care package. The vote was 56 to 43 in the Senate and 220 to 207 in the House, with Republicans unanimously opposed in both chambers. Since the bank-based loan program began in 1965, commercial banks like Sallie Mae and Nelnet have received guaranteed federal subsidies to lend money to students, with the government assuming nearly all the risk.

Student Debt Threatens the Safety Net for Elderly Americans

August 12, 2014

Until his Social Security check arrived nearly $300 lighter last June, Eric Merklein, 67, had no idea that he was carrying outstanding student debt. Merklein eventually learned that the government was taking money from his Social Security payments to repay loans he took out roughly four decades ago; he had thought they were paid. Merklein was unemployed, and the garnishment amounted to one-sixth of his total monthly income.

“‘You gotta be making this up,’” Merklein says he thought, at first. “The fact that they didn’t even call me or send me a postcard saying they were going to be doing this, I mean, it’s just nuts.”

Merklein is one of a growing number of Americans aged 50 and older who haven’t finished paying their student loans. Student debt is growing faster for seniors than for any other age group, according to the latest data gathered by the Federal Reserve Bank of New York.

Lingering student loan debt is part of a broader and, many elder-care lawyers say, devastating accumulation of debt among older Americans.

While people aged 50 and older hold only 17 percent of all U.S. student debt, this group has nearly three times as much debt as it did in 2005, according to the New York Fed data. By comparison, student debt for people under 40 is about one and a half times as high it was then.

The numbers don’t distinguish between older Americans who took out loans to finance their education and those who did so to put their children through college. A Gallup report released this month showed that people who took out loans decades ago are more likely to report low levels of health and financial well-being than their debt-free peers are.

For older Americans, owing for government-backed student loans can be particularly tough. Unlike other kinds of debt, including private student loans, collectors of federal student loan debt have the power to garnish income, block benefits, and withhold tax rebates. As a result, some older borrowers are seeing part of their Social Security payments seized and their wages cut off just when they are especially vulnerable.
Before Merklein went on Social Security in 2013, he was sure he didn’t have to worry about the money he borrowed from the government in 1970 to fund his undergraduate education. In the early 1970s, he says, his grandmother handed him an envelope with a note and a receipt that said the loan was paid in full. But Merklein lost the envelope—“I probably lost it within 48 hours, being a twentysomething at that time,” he says.

Now, nearly four decades after he went to college, the debt is haunting him. Merklein says that an agency collecting debt on the part of the government informed him that it has no record of the payment and that his loan accumulated interest for decades and went into default. He owed over $20,000, including collection costs, the agency said.

He spent hours speaking on the phone with debt collectors and says the government has stopped taking money out of his Social Security payments. He’s now paying $50 per month so that his loan can be transferred to a government repayment plan. He still worries about the Department of Education seizing his income without warning.

“They could come after me today,” he says. “And I would have no recourse.”

Garnishing social security checks is just one tactic the government can use to recoup money it is owed. Lawmakers gave federal officials far-reaching powers of debt collection two decades ago, after the largest federal loan guarantor collapsed and a congressional investigation revealed that schools were fraudulently receiving millions in federal grants.

Default rates have dropped by half since then, thanks in part to the government policies. But critics worry that the policies may also have crippled some who have no way to shake their debt, says Ben Miller, a senior policy analyst at the New America Foundation.

Some seniors are saddled with loan payments for an education that never led to stable employment. Debbie Crotinger, 55, borrowed around $10,000 to attend Garden City Community College in Garden City, Kans., in the early 1990s. She was going to college for the first time, fresh out of a marriage to a man she says was routinely abusive.

Crotinger never finished her degree because she couldn’t keep up with a full time job and the demands of childcare. She says she held minimum wage jobs for years while she looked after three kids. Now the government is garnishing about $235 per month from her $1200 monthly paycheck to pay off a loan that hovers around $40,000 with interest.

“They’re killing me,” Crotinger says, “I don’t know what to do about it. I figure I will be paying it off the rest of my life.”

Crotinger lives with her mother in Watonga, Okla., who is in her eighties, and says that after paying for her mother’s necessities, she has around $150 a month to pay for gas and other personal expenses. Crotinger’s only lifeline is the $40,000 in her late husband’s retirement account, but she hasn’t touched it.

“I am afraid to claim it because I’m afraid they’ll take it,” she says, referring to the government. She says she wouldn’t be able to forgive herself if the money didn’t make it to her four children. “It’s not much, but it would help the kids out,” she says.

Student Loan Crisis Solved -- Next Problem?

Economists fear we’re racing towards another trillion dollar bubble of student loan debt. But there is a simple way to stop the madness now, before we blow any more taxpayer dollars — or our kids pay an even bigger price.

December 14, 2012

Forbes - If financial history has taught us anything, it’s that high levels of debt and, more specifically, bad loans lead to financial crises. We have seen this numerous times including the Asian Debt Crisis in the late 90s, the more recent Greek Debt Crisis and, of course, the U.S. subprime mortgage debacle.

Financial crises have often been linked to government monetary policy. Arguably, the U.S. government was at least complicit with “easy money” credit policies that led to the housing boom and bust, which in large part triggered our most recent financial crisis.

Unfortunately, we are heading for another government-induced financial crisis — this time it is the $1 trillion in student loan debt. As of 2010, about one in five households in the U.S. have student loan–related debt of over $26,000. What is saddest about this pending crisis is that it will likely impact millions of student borrowers throughout their lives, because unlike credit card debt or mortgage debt, student loans can’t be discharged by bankruptcy.

How did we get here?

Ironically, as this crisis races toward a financial cliff, there has been no action by the government to curtail student loans, as would be the case in any other debt-related financial crisis. In 2011-12, the federal government issued 93 percent of all student loans.

Student loans are unique for a number of reasons, none perhaps more glaring than the fact that virtually nothing can disqualify an applicant from a federally-backed loan, excluding a prior student loan default or a drug conviction. A student loan is quite possibly the only loan that is not tied to credit worthiness or the ability to repay. Even more frustrating is that these easy loans are correlated to the rising cost of college — colleges have every incentive to raise costs knowing that there is an endless money supply.

Stop the madness

This crisis will likely end badly for the millions of student borrowers steeped in debt and with no ability to repay. For some reason, the government believes that everyone should go to college and is willing to give students any amount of money to put them on that righteous path. Inexplicably, this is all happening with no regard to whether students will be employable upon graduation or how they will pay back these monstrous loans. This madness must stop.

Like any loan, there needs to be some element of credit worthiness as William Bennett suggested last week in his article, “The looming crisis of student loan debt.” But one might ask, how can an unemployed student be creditworthy?

A simple solution

Admittedly student loans are riskier than most since there is no tangible asset to collateralize (although there certainly is a non-tangible asset — the student’s education). However, all educations are not created equal and should be “appraised” by lenders as part of a student loan determination.

College fees and student loan debt have a perverse symbiotic relationship. Rising costs in education beget rising student loan debt. It is puzzling why an art degree costs as much as a computer science degree when the job prospects of each are so vastly unequal.

Lenders, in this case the government, should make a fact-based determination of a student’s likelihood to graduate, to get a job and their expected income. Prospective students applying for loans can be evaluated for “credit worthiness” based on a score much like a FICO score. A student loan score would be based on a formula comprising their grade point average, major, and academic institution. Each of these variables is directly related to a student’s ability to get a job upon graduation and repay their loans. For example, a STEM (science, technology, engineering and mathematics) major at MIT would yield a higher score and loan compared to a religious studies major at a lesser ranked school.

While the solution I have outlined doesn’t offer relief to those deeply in debt today, it will stop more hot air going into the student loan balloon. And although I agree that everyone should have the right to go to college and study whatever they’d like, our government and colleges shouldn’t be reckless with our youth’s financial future — or taxpayer dollars.

McConnell: ObamaCare to blame for higher student loan rates

June 4, 2013

The Hill - Senate Minority Leader Mitch McConnell (R-Ky.) said Tuesday ObamaCare is a driving reason for higher student loan rates.

“Rates are going up, and the tuition is going up so [students] have to pay back more at a higher rate … all because of something young people had nothing to do with — and that’s the passage of ObamaCare,” McConnell said on the Senate floor.

McConnell said that part of the Affordable Care Act, also known as ObamaCare “abolished the student loan program.” 

As part of the healthcare law, Congress stopped allowing private banks to provide student loans. All student loans are now federal loans, which McConnell argues has led to higher rates.

He said the administration pushed a policy that allowed the federal government to take over the student loan program and raised the interest rates.

He added that Medicaid cost increases associated with the healthcare law have forced states to raise tuition rates, also negatively affecting college students.

Rates on federally backed student loans are set to jump from 3.4 percent to 6.8 percent in July. Congress passed a bill keeping the rates at 3.4 percent last year, but it expires next month.

Before McConnell spoke, Senate Majority Leader Harry Reid (D-Nev.) said Tuesday that the Senate “must move by the end of June to keep student loan rates low.”

“If we do nothing, it will double the rates,” Reid said on the Senate floor Tuesday. “If we do what the House wants, it will triple the rates, so we can’t do that.”

The House has approved legislation that would peg federal student loan rates to the rate on the 10-year Treasury note plus 2.5 percent. The rate would be variable and would reset each year, although students could package all their loans into a fixed-rate loan after graduation. The GOP bill also caps the rate at 8.5 percent for most students.

Reid argued the House bill would add $6,500 to the average student loan bill.

He called on the Senate to approve legislation sponsored by Sens. Jack Reed (D-R.I.) and Tom Harkin (D-Iowa). Their Student Loan Affordability Act, S. 953, would freeze need-based student loan interest rates for two years while Congress works on a long-term solution. Reed said lawmakers need the extra time because Congress is not set to consider the reauthorization of the Higher Education Act.

Reed and Harkin would pay for their bill by ending three tax breaks. Specifically, it would limit the use of tax-deferred retirement accounts, restrict “earnings stripping” by expatriated entities and close an oil and gas industry tax break by treating oil from tar sands the same as other petroleum products.

“I will do everything I can to have a vote on our bill this week,” Reid said.

McConnell said the House Republican bill isn’t too different from a plan proposed in President Obama’s 2014 budget. He suggested that Obama stop “campaigning” and start working with Republicans to “bridge the relatively small differences” between the two plans.

“We’re not too far apart on this student loan issue,” McConnell said. “There is no reason for the president to hold campaign-style events. … The plan we put forward is pretty similar to his own.

McConnell criticized Democrats and specifically Obama for trying to politicize the issue. In a speech last week, Obama called on Congress to act to stop the student loan hike.

“If the president were really serious about getting this done, he would’ve spent that time on Friday ringing up senators to see how he could bridge our relatively small differences — not bashing Congress,” McConnell said. “So the president has a choice to make. Does he want to push some campaign issue for 2014, or does he want to address the problem here and prevent this rate increase?”