Bernie Sanders Wants to Make Social Security Checks Off-Limits for Debt Collection - Here's His Plan

Millions of Americans have reached retirement age still carrying student loan debt, and falling into default can have a consequence many borrowers may not expect: The federal government can take part of their Social Security checks.

Sen. Bernie Sanders announced the Stop Social Security Garnishment Act on August 17 to stop the federal government from taking money out of Social Security checks to collect on defaulted student loans, a change that could matter for older borrowers already living on just Social Security.

More than 9 million borrowers are in default

Sanders' proposal comes as millions of federal student loan borrowers remain behind on their debt. According to Sanders' office, more than 9 million Americans are currently in default, representing nearly one in four federal student loan borrowers.

Federal Student Aid says most federal student loans generally enter default after at least 270 days without a required payment. If a borrower remains in default for more than 360 days without taking action, involuntary collection methods can begin.

Those collection tools can include taking a federal tax refund, garnishing wages, or withholding part of certain federal benefits, including Social Security.

The government can take part of your Social Security check

The Treasury Offset Program allows the federal government to withhold money from certain federal payments to collect delinquent debts. That can include Social Security benefits when the borrower owes qualifying federal non-tax debt, such as defaulted federal student loans.

Treasury rules generally allow the government to take the lesser of 15% of a Social Security payment or the amount of the payment above $750 per month. This means the amount at stake can add up quickly. Someone receiving $1,500 a month could potentially lose $225 from each check, or $2,700 over a year. A $2,000 monthly benefit could mean $300 withheld, or as much as $3,600 over 12 months.

A retiree receiving $3,000 could potentially see $450 withheld each month, adding up to as much as $5,400 over 12 months.

Borrowers should receive notice before an offset

A Social Security check generally shouldn't be reduced without warning. Before a delinquent debt is sent to the Treasury Offset Program, the federal agency involved must generally send the borrower a notice at least 60 days beforehand. The notice must explain the debt, the agency's intention to use an offset, and the borrower's rights to challenge or resolve it.

Borrowers may also be able to get out of default through options such as loan rehabilitation or consolidation, depending on their circumstances.

Federal Student Aid recommends that struggling borrowers contact their loan servicer before reaching default, since repayment or temporary relief options may still be available.

Sanders says the policy can hurt seniors already struggling

Sanders argues that taking money from Social Security checks is particularly damaging because some older borrowers depend heavily on those payments for everyday expenses.

"In the richest country in the history of the world, no senior should have their Social Security payments taken away from them to pay back student debt," Sanders said when announcing the legislation.

His office says more than one-third of Social Security recipients who also have student loans rely on their Social Security payments to make ends meet.

The Vermont independent also cited research showing that half of recipients who previously had Social Security checks garnished over defaulted student loans reported either skipping a doctor's visit or being unable to obtain a needed prescription because of the cost.

The bill would stop Social Security garnishment

The Stop Social Security Garnishment Act would remove Social Security benefits from the federal government's collection toolbox when the debt involved is a student loan.

Under Sanders' proposal, the government could no longer garnish Social Security payments, including Social Security and Social Security Disability Insurance (SSDI), from older adults and people with disabilities to repay defaulted student loans.

Notably, the legislation wouldn't cancel the underlying student loan balance. Borrowers could still owe the debt, and other collection rules could potentially apply. The bill specifically targets the government's ability to take Social Security benefits to satisfy it.

Sanders' bill would also cover SSDI

The proposal isn't limited to traditional retirement benefits. Sanders' bill specifically includes Social Security Disability Insurance, meaning people receiving SSDI because of a qualifying disability would also be protected from having those payments garnished over student debt.

That could matter to borrowers who began receiving disability benefits before reaching traditional retirement age and still have old federal student loans in default.

Sanders described the measure as a way to ensure older adults and people with disabilities can continue using those benefits for expenses such as medicine, healthcare, groceries, and housing.

The bill has Democratic support

Elizabeth Warren, Ed Markey, and Ron Wyden joined Sanders as original cosponsors of the legislation. A number of labor, consumer, and retirement advocacy groups have also endorsed the proposal. However, introducing a bill doesn't change current collection law.

The Stop Social Security Garnishment Act would need to pass Congress and be signed into law before its protections take effect. Until then, Treasury rules allowing certain Social Security payments to be offset for federal debts remain in place.

That makes it important for borrowers who receive an offset notice to respond rather than assuming Sanders' proposal has already stopped collections.

Bottom line

Sanders' bill would make a significant change for older and disabled borrowers with defaulted federal student loans by preventing the government from taking Social Security or SSDI benefits to collect the debt.

The proposal hasn't become law, so borrowers can still face offsets under current rules. With the Treasury generally able to withhold as much as 15% of a Social Security payment, someone relying heavily on those checks could lose hundreds of dollars a month, making defaulted student debt an issue worth addressing before it begins eating into money in your retirement plan.

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