Hundreds of thousands of Social Security recipients were jolted recently by notices warning that their benefits would be reduced starting in June.
The reason?
Delinquent federal student loans. However, in a last-minute reversal, the Trump administration announced a pause on the garnishment of Social Security checks for borrowers in default.
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The initial warnings, issued by the Departments of Education and Treasury, triggered widespread concern among older Americans, especially those already living on fixed incomes.
While the temporary suspension may offer short-term relief, it does little to clarify the long-term picture or ease the financial vulnerability of retirees with government debt.
Social Security garnishments spark alarm
Student loan garnishments cannot be reversed by Social Security Adminstration
According to Elaine Floyd, director of retirement and life planning at Horsesmouth, garnishment of Social Security and other federal retirement benefits is authorized under the Treasury Offset Program for several types of unpaid federal debts:
Unpaid federal student loans: “If you’ve defaulted on your federal student loans, the government can garnish up to 15% of your monthly Social Security payment without giving you a court hearing or additional warnings,” said Floyd. “They must leave you with at least $750 per month. For example, if your benefit is $3,000 per month, they can take $450 (15%). If your benefit is $800 per month, they can take no more than $50, ensuring that you can keep at least $750.”Unpaid federal taxes: Garnishments for back taxes are handled under the Federal Payment Levy Program (FPLP) and continue until the debt is paid in full. “The $750 protection applied to other loans does not apply to federal income tax debts,” Floyd said. “A court order is not required.” While the IRS typically sends multiple warning letters, retirement, disability, and survivor benefits remain subject to garnishment—though Supplemental Security Income (SSI), lump-sum death payments, and children’s benefits are not.Court-ordered obligations: “For child support or alimony, the Consumer Credit Protection Act (CCPA) limits garnishment of Social Security benefits to a maximum of 50% if you’re supporting a spouse or child other than the one covered by the court order,” said Floyd. “If you are not supporting another spouse or child, the limit is 60%. Additionally, if the support is 12 or more weeks in arrears, an additional 5% can be garnished.”
Floyd emphasized that the Social Security Administration (SSA) cannot reverse garnishment once it begins.
“It is therefore preferable to work out debt repayment arrangements directly with the creditor in question before garnishment of Social Security starts.”
Options may include installment agreements or offers in compromise with the IRS. “Even though taxes would still be owed, taking such measures would forestall garnishment by the IRS.”
She said settlement, rehabilitation, or consolidation could be considered for student loans in default. “Obviously, debt management and repayment options are varied and complex.” She warned that bankruptcy typically is not a solution.
“Taxes, federal student loans, and child support — the very loans Social Security can be garnished for — may not be discharged in bankruptcy.”
Related: How the IRS taxes Social Security income in retirement
In January, the average monthly Social Security retirement benefit was estimated to be $1,976, and 68 million Americans received Social Security benefits, and 7.5 million received Supplemental Security Income (SSI) benefits.
Heather Schreiber, founder of HLS Retirement Consulting, said most people are unaware of the history and scope of the Treasury Offset Program.
“Most consumers are unaware of the history of the Treasury Offset Program,” she said. “It was created back in 1996 under then-President Clinton and had wide bipartisan support.”
She explained that the program was designed to collect delinquent debts such as federal student loans, unpaid federal and state taxes, child support, and SSA overpayments by intercepting federal payments like tax refunds, Social Security and Railroad Retirement benefits (capped at 15%), and federal unemployment compensation.
Schreiber noted that when the program was suspended in 2020 due to the COVID-19 pandemic, some may have assumed it was permanently repealed. “I’m sure many believed (if they were aware that the TOP program existed) that the program was permanently repealed.”
Its reinstatement, she said, is happening amid a wave of financial challenges for retirees.
“Combine its reinstatement with all the other news — of inflation, retirees’ concerns about being able to survive in retirement, reinstatement of a quick 100% now down to 50% overpayment recovery rate, the solvency issue that could result in benefit cuts across the board, and now a potential cut to benefits for those who have defaulted on student loans,” said Schreiber. “It’s a Molotov cocktail that only heightens concerns on an already fearful retired population who is struggling.”
Related: Social Security income tax deduction clears critical hurdle
She welcomed the pause. “So, I am certainly glad that the Department of Education put this on hold before it came out of the gate,” Schreiber said. “All the more reason that consumers planning for retirement should find a knowledgeable adviser to help them better plan for and navigate the road to and through retirement.”
Options limited for those facing garnishment of Social Security benefits
Jim Blankenship, a certified financial planner with Blankenship Financial Planning, said options for those already facing garnishment are limited.
“Unfortunately, this situation doesn’t come with many escape options,” he said.
Blankenship said the usual advice — reduce expenses, increase income, or sell possessions — often falls flat for those living on Social Security alone.
“The age-old advice of ‘reduce expenses,’ ‘find additional sources of income,’ or ‘sell some possessions’ becomes hollow when the expenses are mostly fixed, taking on employment at a late age is not desired, and there are no possessions to sell,” he said.
Blankenship stressed that the debt must be dealt with directly.
“The loan and the payment aren’t going to go away — so reducing that outflow is not an answer,” he said. “Realize that you’re in a position where you must make hard choices about prioritizing things — housing, food, and medical expenses should come first, and literally everything else is up for debate.”
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Solutions might include downsizing, renting out part of one’s home, or seeking part-time work. “Some level of employment doesn’t have to be out of the question, and many businesses are clamoring for employees these days.”
He encouraged a detailed review of all expenses. “If there are any extras in your month-to-month outflow of expenses that can be reduced, now is the time to do it,” said Blankenship.
That includes discretionary spending like dining out, entertainment, and subscriptions. “You may have to cut down on your regular coffee klatch, or dining out. Review your cell phone plan, review monthly subscriptions (including streaming services and the like) to see if there are reductions that can be made. Review insurance coverage — maybe increase your deductibles, if that would have an appreciable reduction in your premiums.”
