On January 8, the CFPB published an Issue Spotlight describing the challenges faced by student loan borrowers affected by the forced collection of Social Security benefits due to defaulted federal student loans. After a years-long reprieve as a result of the Covid-19 pandemic, the Department of Education is set to resume collection efforts on defaulted student loans, which may be accomplished through the offset of Social Security benefits. The report highlights an increase in the number of Social Security beneficiaries experiencing these offsets, with figures rising from approximately 6,200 in 2001 to 192,300 in 2019 — an over 3,000 percent increase. As described by the CFPB, the increase is largely driven by the aging population of student loan borrowers, as the number of borrowers aged 62 and older has increased significantly, while the number of younger borrowers has slightly declined. The total amount collected from Social Security benefits through offsets grew from $16.2 million to $429.7 million during the same period, with most of these funds being allocated to interest and fees rather than towards paying down the principal balance.
The report states that more than one-third of Social Security recipients with student loan debt depend on these benefits for 90 percent of their income. Furthermore, the Bureau stresses that existing statutory minimum income protections are deemed insufficient to protect such borrowers from financial hardship as only $750 per month is protected from forced collections—an amount that has not been adjusted for inflation since 1996. The report also points out that a significant portion of affected beneficiaries could qualify for loan cancellation or other protections but are prevented from accessing these benefits due to their advanced age and the Department of Education’s insufficient data matching processes for identifying borrowers who may be eligible for relief.
