Senior Citizens' Outstanding Federal Student Loan Debt Grew from $2.8 Billion in 2005 to $18.2 Billion in 2013 - Total Student Loan Debt in the U.S. Amounts to $1.2 Trillion, the Vast Majority Owing to Federal Loans

Education Department-initiated collections on defaulted federal student loans left at least another 83,000 Americans aged 64 and younger with poverty-level Social Security payments, GAO data show. Federal auditors cautioned that the number of Americans forced to accept poverty-level benefits because of past defaults on federal student loans are surely higher. More than half, or 54 percent, of federal student loans held by borrowers at least 75 years old are in default, according to the federal watchdog. About 27 percent of loans held by borrowers aged 65 to 74 are in default. Among borrowers aged 50 to 64, 19 percent of their loans are in default. The Education Department generally defines a default as being at least 360 days past due. As unpaid student debt approaches $1.3 trillion, the federal watchdog's findings underscore the consequences of increased student debt burdens and the risk they'll wreak havoc on households in the coming years if U.S. workers continue to see little increase in their paychecks, the economy barely grows, and the Education Department's contractors keep borrowers in the dark on repayment options. [Source]

Once a borrower has failed to pay back his federal loan for 425 days, the government has the power to withhold Social Security retirement and disability payments to offset the debt. In 2013, the GAO reports that 155,000 Americans, including 36,000 individuals older than 65, saw their benefits garnished in this fashion.

Because Social Security is designed to keep the elderly and infirm from falling into destitution, Congress very sensibly limited how much money the Treasury Department could withhold from their benefits when collecting on a student loan. Much less sensibly, the cap wasn’t indexed for inflation and hasn’t been updated since the 1990s. As a result, the GAO reports that, "the current limits may result in monthly benefits below the poverty threshold for certain defaulted borrowers." To translate that into the clearest terms possible: Due to Congress' neglect, our government is now probably pushing somebody's grandparents into poverty so that they can settle up a bad college debt. [Source]

More older Americans are grappling with debt from student loans, which can cut into Social Security payments and leave seniors more financially vulnerable during retirement, according to a Government Accountability Office report . The analysis was highlighted on September 10, 2014, during a U.S. Senate hearing of the special committee on aging, "Indebted for Life: Older Americans and Student Loan Debt". Even though borrowers over the age of 65 held only 1 percent of all outstanding federal student loans (as of 2013), they defaulted at higher rates than younger borrowers. The GAO report notes that 12 percent of the federal loans held by borrowers between the ages 25 and 49 were in default. By comparison, "27 percent of loans held by individuals 65 to 74 were in default, and more than half of loans held by individuals 75 or older were in default," the report says. More than 80 percent of the outstanding student debt among seniors is for loans they took out for their own education, not for their children's education. The GAO said it did not have information on the age of the loans, and therefore could not determine how much of seniors' education debt stems from loans that were originated recently or loans that were originated many years ago. [Source]

Social Security: The Shocking Way the Government's Taking Benefits Away

September 14, 2014

The Motley Fool - For the tens of millions of retirees who depend on Social Security for a major part of their financial well-being, even the smallest increase in their monthly benefits can make a big difference in their ability to support themselves in retirement. But alarmingly, an increasing number of Social Security recipients face a threat that has taken away some of those hard-fought benefits -- and that threat is coming directly from the federal government in the form of garnishments due to student loans.

The rising tide of Social Security garnishment

A recent report (link opens PDF) from the Government Accountability Office highlighted some troubling statistics concerning student loans, older Americans, and Social Security benefits. Between 2005 and 2013, federal student loan balances grew substantially for the population overall, recently topping the $1 trillion mark. Yet the pace of borrowing for those aged 65 and older is accelerating more than the broader trend, with debt levels growing more than sixfold to more than $18 billion in 2013.

Older Americans are in a much weaker position to maintain and repay debt than their younger peers who still earn wage income. As a result, it's not surprising to see higher default rates for those 65 and older than for those in younger age groups. But the extent to which those default rates climb is shocking, with more than half of all loans to those 75 or older in default.

Because of the financial stress that older Americans face, the federal government has increasingly resorted to offsets of Social Security benefits in order to repay delinquent student loan amounts. Overall, the number of people seeing their benefits garnished has quintupled to 155,000 over the last 11 years, and among those 65 and older, the rise from 6,000 in 2002 to 36,000 in 2013 marks an even faster growth rate.

In addition to the challenge that older Americans face, those who suffer from disabilities bear an even larger burden from the government's garnishment efforts. In 2013, more than 100,000 people under the age of 65 receiving disability benefits had their payments offset because of their student loan liabilities, dwarfing the number of retirees who had benefits withheld.

What makes those disability figures particularly surprising is that in general, borrowers who suffer from the total and permanent disabilities that make them eligible for Social Security benefits also qualify to apply to have their federal student loan balances discharged.

The solution for Social Security recipients

The GAO notes that the government faces a balancing act in determining future policy on Social Security and student loans. On one hand, limits already exist that prevent the government from taking more than a certain amount away from Social Security and other federal benefits, and those limits help to ensure at least a base minimum amount that every recipient will keep regardless of outstanding debts. Yet clearly, efforts to boost those minimum benefit levels and thereby reduce the amount of garnishment taking place would hamper the federal government's collection attempts with respect to its student loan program. As a result, the government has to choose between its desire to keep older Americans out of poverty while also avoiding the moral hazard of unpaid student loan balances.

Interestingly, the trend toward greater loan balances among older Americans appears not to come from the needs of financing the educations of their children and grandchildren. The GAO found that more than 80% of debt held by those between ages 65 and 74 was for their own education, rather than for that of family members. What that indicates is that in many cases, older Americans either aren't handling long-held student debt during their careers or they're incurring more debt late in life to attend school in retirement.

For now, the conclusion that most policymakers have made is that the problem isn't large enough to warrant wholesale changes to Social Security and the laws governing allowable collection activity. If the trends that the GAO identified continue, though, then action will become necessary to avoid an even larger impact from student-loan defaults.

Q&A: Student loan debt among seniors on the rise

September 11, 2014

A new government report looks at the affect student loan debt is having on retirees. That report, from the Government Accountability Office (GAO) was released at a hearing of the U.S. Senate Special Committee on Aging Wednesday. According to the report, outstanding federal student debt owed by older Americans increased six-fold since 2005, to more than $18 billion last year. USA TODAY retirement columnist Rodney Brooks talked to Sen. Bill Nelson (D.-Fla.), chairman of the U.S. Senate Special Committee on Aging about the report and the the hearing.

Q: Senator, what made you call Wednesday's hearing?

A: Seniors, unbelievably are carrying a lot of student loan debt. As a result a senior's Social Security check, if there is a huge loan debt, can be garnished. They can take everything out of the check except $750, but that is $100 below the cost of living.

In the course of the hearing, the administration of this by the Department of Education has come under question. We had a 57-year-old lady on the panel. She at one point consolidated her debt at at time when interest was 8%. She can't refinance. We have a number of issues. The committee will follow up with Education Secretary (Arne) Duncan.

Q:How big is this problem, and why are so many senior citizens facing huge student debt?

A: Some may think of student loan debt as just a young person's problem. But, increasingly that's not the case. Right now, student loan debt among seniors is fairly small, but it's growing quickly and much faster than other age groups. In a report the GAO submitted to the Senate, they found that the amount senior citizens owe in outstanding federal student loans has increased six-fold, from $2.8 billion in 2005 to more than $18 billion last year. Seniors are facing debt for a variety of reasons, but a large majority of it is for their own education. Many of these folks are going back to school later in life, but are then unable to find jobs that will allow them to pay off their debt before they hit their retirement years.

Q: So what are the lessons here for seniors to keep them from getting into this situation?

A: One such lesson is that if you put off repaying a loan, you're creating a bigger mountain of debt in retirement thanks to compound interest and fees. ‎ So, if you find yourself behind on your payments, try to find a repayment plan that can work for you instead of putting it off for another day.

Q: How can the government handle this better?

A: Among other things, we should be doing more to educate people about the true impact and cost of the debt they are taking on. Additionally, government contractors who service the federal student loans must do a better job of keeping seniors out of default by being proactive in offering repayment options.

Q: Is this issue getting worse? And how can we fix this problem? 

A: Yes. We're seeing more and more seniors who count on Social Security income having a portion of their checks garnished by the government because they can't afford to pay back their federal student loan debt. I plan to work with Sen. Susan Collins of Maine to introduce bipartisan legislation that will help seniors keep more of their Social Security income — and index that figure for inflation — so that they do not fall into poverty when their checks are garnished due to a default on a student loan.

Crippling Student Loan Debt - The Problem

By thanatokephaloides on Fri Sep 12, 2014 at DailyKos

In the terms of your question:

Is it abuse by the lenders, i.e. over loaned to the debtor or bad terms and fees, or way too expensive schools or scams or what

No, the big question that needs to be discussed is why we need perpetual student loan peonage at all.

It's all a scam, stem to stern. The scam works something like this: 

1. Make it impossible to get a job worth working unless you're a college grad.

Jobs any high school graduate (or even less) were able to land and work as recently as 1990 are either extinct or have suffered such credential inflation that one needs a massively over-priced formal education just to obtain them.

2. Wipe out nearly all effective grant aid programs, especially for non-athletes.

Our grant-in-aid programs to higher ed students were designed for a world long past, where fewer than one-quarter of high school grads would even be attempting college at all. Now that three high school graduates out of four are attempting college, these programs are woefully under-funded and overloaded.

3. Dilute the wages of college graduates so they all have problems repaying the loans.

With all the college graduates appearing to compete for a far-too-small number of jobs, wages inevitably go down, and turnover rises up as employers toss workers out like so many used kleenex.

The world our student loan programs were designed for -- a world where a reasonable bachelor's degree was a reliable ticket to a good, steady job and a genuinely affluent-class lifestyle -- is no more. And the human disasters we've been discussing in this Diary and others are the inevitable result.

Quite a few commentators have remarked that one of the reasons for student loan debt bondage was to eliminate student social activism. This is quite believable. If you are over your head in debt just to qualify for a semi-reasonable job, you'll shut your mouth and do what you're told -- no matter what that is. If you are told to contribute to Republican candidates, you do it. If you are told to work 18 hours a day, you do it. If it means you starve your kids, you do that, too. (Or you refuse to have kids, which is what I did.)

The for-profit school scams, and the overpricing of education even at public non-profit schools, are hairbreadth scratches on this ginormous iceberg.