But this is the way it works, and it’s another example of how government policy continues to harm millions of students.
If you are old or partially disabled or both – and have an outstanding student debt, even one going back decades – the government still can take a portion of your Social Security check. Or your parents’.
Richard Brown, 65, of Ossining, New York, knows about that.
In 2004, Brown and his wife had good jobs in information technology. He took out $50,000 in federally guaranteed student loans for his daughter because he didn’t want her to go into debt, and they could afford to help her.
But then the recession hit. Brown lost his job in 2009 and at 58 couldn’t find another. Three years later, his wife lost her job when her company was acquired by a competitor. Their debts mounted, and by 2013, the student loans, because of compounding interest and penalties, had risen to $135,000.
The couple filed for bankruptcy, but the student loans weren’t eligible. Brown was shocked when the federal government began taking $250 a month from his Social Security check of $1,700.
“This is money we need to live on,” he said. “To us, it’s a lot of money. We worked 35 or 40 years to be eligible. I had no idea they could do that.”
Not only can the government do that, but it’s doing so more often. The government can take as much as 15 percent of a debtor’s Social Security and in 2013 garnished benefits of 155,000 Americans who were in default on their federal student loans, according to a GAO report. That’s a fivefold increase in a decade.
By law, banks and credit card companies cannot seize Social Security benefits to collect debts. But in 1986, Congress gave the U.S. Treasury the go-ahead to garnish Social Security payments to collect money owed to the government.
The amount of money the government has raised by garnishing Social Security benefits – $150 million in 2013, for example – is a tiny fraction of the $1.2 trillion that borrowers owe the government for federal student loans.
After the federal government garnished Brown’s Social Security, he and his wife lost their cooperative apartment to foreclosure. They moved in with their daughter.
As for the student loan industry, it keeps rolling along.
Look no further than the handsome I. M. Pei-designed building in downtown Wilmington, Delaware, where a student loan startup is making waves.
College Ave Student Loans bills itself as “the leading next-generation student loan marketplace lender.” With claims that it will disrupt the multibillion-dollar student loan industry, College Ave has said it is going to bring “innovation to a long-stagnant market.”
Behind those claims are some familiar faces.
Two former Sallie Mae executives founded the company in 2014. It’s had no trouble raising $40 million from venture capitalists and hedge fund investors.
There’s one other investor in College Ave who knows a lot about making money in the student loan industry: Albert Lord.
Reveal senior reporter Katharine Mieszkowski contributed to this story. It was edited by Andrew Donohue and Amy Pyle and copy edited by Sheela Kamath and Nikki Frick.
Investigative reporter James B. Steele is the co-author of eight books, including the 2012 work, “The Betrayal of the American Dream.” Steele can be reached at jim_steele@comcast.net, and Lance Williams can be reached at lwilliams@revealnews.org. Follow Williams on Twitter: @LanceWCIR.
