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Social Security and Student Debt: We All Have a Stake
posted 01.14.2016

By Nancy Altman

Those who favor cutting Social Security sometimes seek to turn the young against the old. “Older Americans, their lobbies and the politicians who do what they ask are actually waging war on young people,” says Jonathan Cowan, president of Third Way, a nonprofit organization that urges the scaling back of Social Security.

Cowan and others who seek to pit generations against each other refuse to recognize the interconnectedness of all generations.

Nowhere is this interdependence clearer than in Social Security, which many think is only for the old, and student debt, which many think affects only the young. Both issues affect us all.

Student Debt Affects All Generations

Social Security is the nation’s largest children’s program, insuring America’s children against the loss of family income in the event of death, disability or old age. Nearly 12 percent of the nation’s children receive Social Security benefits directly, as beneficiaries, or indirectly, as members of households whose income comes, partly or totally, from Social Security. The program protects all generations.

And the student debt crisis affects all generations. Half of the Millennial generation carries student loan debt. Unbeknownst to most, significant numbers of older people carry student debt, too. People ages 65 and older owe $18.2 billion on student loans. People ages 75 and older owe around $2 billion on outstanding student loans. As the population ages, those amounts will grow.

Most of the student debt of the old is a result of borrowing for their own education or retraining, sometimes from decades ago. Student debt cannot easily be discharged in bankruptcy, despite great hardship (Click here to read about the prospect of claiming hardship). Generally, permanent and serious disability or death are some of the only ways people discharge these unpaid debts. Other student debt is owed on behalf of grandchildren. About 90 percent of non-government student debt, loans made by private banks or other private financial institutions must be co-signed and the co-signers are generally parents and grandparents (to read about the risks in co-signing, click here).

While the student debt held by older adults is comparable in size to that held by younger Americans, it is much more likely to be in default. In 2013, 12 percent of federal student loans held by those ages 24 to 49 were in default. In contrast, 27 percent of federal student loans held by those ages 65 to 74 were in default. For those ages 75 and older, the default rate was more than 50 percent!

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Keeping Social Security Beyond the Reach of Creditors

As a general matter, Social Security benefits are beyond the reach of creditors. Unlike wages or bank accounts, but like trust income generally, Social Security can’t be garnished by financial institutions and other private creditors. But, shockingly, the federal government can garnish Social Security benefits.

Before 1996, Social Security benefits were beyond the reach of even the federal government. Then Congress enacted the Debt Collection Improvement Act, which allows the federal government to garnish a portion of one’s Social Security benefits if the creditor is the federal government (the government can take up to 15 percent of the benefit, if it leaves at least $750 a month).

As a result, in 2013, 156,000 Social Security beneficiaries had a portion of their benefits garnished to the tune of $150 million to pay off student loans. The number of retirees and people with disabilities who have a part of their modest Social Security checks taken to pay off student loans, often decades old, has more than tripled, from 47,500 in 2006 to 156,000 in 2013. And that is the fate awaiting many young people if the law is not repealed. Their unpaid student debt can literally follow them into retirement and to the grave. The debt is discharged at death unless the loan was co-signed by someone still living.

Social Security and student debt are intertwined conceptually. Both involve fundamental economic security. One cannot be economically secure with mountains of debt. Similarly one cannot be economically secure if an accident, illness, death of a provider or old age can mean destitution. When grandparents have guaranteed, adequate incomes, they can support themselves, taking pressure off adult children. And when those entering the workforce are educated, and get good paying jobs free of crushing student debt, they can contribute more affordably to Social Security. Moreover, the floor of protection that Social Security provides allows young adults to take economic risks and explore their dreams.

You might also be interested in: The State of Older People—Their Economic Security, Their Health

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The good news is that many of us are fighting to end the garnishment of Social Security. As an important first step, a number of organizations, led by key members of Congress, recently delivered a petition with 375,000 signatures to the Secretary of Education, asking for a moratorium on this practice. Legislation has been introduced in Congress to reduce the amount of one’s monthly Social Security benefit that can be garnished; other legislation would end all garnishment of Social Security benefits completely, going back to the way it was before 1996.

We also are fighting to restore the student benefit, so children receiving Social Security because of the death or disability of a parent can continue to receive those benefits if they enroll in college, a university or vocational training. More generally, we are fighting to increase Social Security’s modest but vital benefits. Legislation has been introduced to do all of that.

Whether we expand Social Security or cut it, and whether we relieve the burden of student debt or we don’t, is a matter of values. Our Social Security system embodies basic American values, as does the idea of all of us having equal opportunities at the start. Founding Father Thomas Paine proposed universal pensions for those who are old or disabled, and proposed that all young people, at age 21, be given a lump sum payment to begin adult life.

As the wealthiest nation on Earth at the wealthiest moment in our history, we can afford more spending on the young and the old. Increased spending on both is imperative. The real question is not how can we afford it, but rather how can we not afford it. 

Nancy Altman is co-director of Social Security Works and co-chairman of the Strengthen Social Security coalition and campaign, in Washington, D.C.

Editor’s Note: This article appears in the January/February 2016 issue of Aging Today, ASA’s bi-monthly newspaper covering issues in aging research, practice and policy. ASA members receive Aging Today as a member benefit; non-members may purchase subscriptions at our online store or Join ASA.

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