Big blow to nearly half a million Americans as social security benefits to be confiscated

In what could be seen as a big blow to millions of Americans, social security beneficiaries will see their payments arrive a little later than normal this month. Millions of Americans who rely on Social Security could see some of their monthly benefits seized, starting in June, if they have defaulted on their student loan debts, reported Newsweek.

The US Department of Education said roughly 2.9 million Americans aged 62 or older hold federal student loan debt and this number has seen a steady rise by more than 70 percent since 2017. More than 450,000 elderly borrowers are currently in default and potentially subject to benefit reductions, the report said.

Social security benefits to be confiscated?

The Trump administration has reinstated aggressive debt collection efforts that were put on hold during the COVID-19 pandemic. One key tool in this effort is the Treasury Offset Program (TOP), which allows the federal government to withhold up to 15% of a person's Social Security benefits to repay defaulted federal student loans. However, monthly benefits cannot be reduced below $750.


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As of May 5, the White House has resumed using Treasury offsets for borrowers in default, which includes automatic deductions from Social Security payments.

"Before the offset begins, a notice of intent to offset will be sent to your last-known address to inform you that the offset and negative credit reporting are scheduled to begin in 65 days," the Federal Student Aid website explains. "The notice may only be sent once, and offsets will continue until your debt is paid or the default status is resolved."

A Department of Education spokesperson told CNBC that borrowers may not receive new notices if they were already warned prior to the pandemic: "The notice may be sent only once, and borrowers may have received this notice before COVID."

“These recovery practices aren’t new—they’ve been used for more than 20 years,” explained Tom O’Hare, a holistic college advisor at Get College Going, in an interview with Newsweek. “They were temporarily halted to support struggling borrowers during the COVID-19 pandemic and the remainder of the previous administration’s term.”

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According to O’Hare, a borrower is considered in default when they fail to make a payment on their federal student loan for 270 days. At that point, the loan is typically transferred from a loan servicer to a collection agency working on behalf of the federal government. This agency may pursue aggressive recovery measures such as wage garnishment and Social Security offsets.

Despite the resumption of collections, defaulted borrowers still have options to regain control of their loans. “The first step is to contact your loan servicer,” said Bethany Hubert, a financial aid specialist at Earnest. “They can help explore solutions such as deferment, forbearance, or income-driven repayment plans that align your payments with your current financial situation.”

Collections resumed on May 5, and benefit payments for June may be impacted by potential seizures. The Department of Education has not yet stated whether it will reassess the process or release another round of warnings.

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Who said what?

Education Secretary Linda McMahon said in a piece for the Wall Street Journal: "If you are a student borrower with a federal loan balance and haven't been making payments, you must restart payments now."

Student Borrower Protection Center (SBPC) executive director Mike Pierce said in a statement: "For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. Since February, Donald Trump and Linda McMahon have blocked these borrowers' path out of default and are now feeding them into the maw of the government debt collection machine. This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country."