The U.S. Department of Education announced earlier this month that it would begin “involuntary collections efforts” for those who have defaulted on their federal student loans. Of the 5.3 million borrowers who could see their earnings garnished, an estimated 425,000 of them are age 62 or older, according to the Consumer Financial Protection Bureau.
For older borrowers, garnishment could mean a deep cut to monthly Social Security benefits.
“You don’t ever see it hit your bank account,” says Bryan Bibbo, a national Social Security advisor and president of financial firm JL Smith in Westlake, Ohio. Garnished money is pulled from your Social Security payment before a deposit is made.
Anywhere from 15% to 65% of your benefit could be withheld to pay off old debts. The exact percentage depends on whom you owe, and for some debts, garnishment isn’t even an option.
[Related:When a Retirement Hardship Withdrawal Makes Sense]
When Social Security Can Be Garnished
Social Security benefits — both for retirement and disability — are afforded special protections against garnishment.
“You’re not going to have your Social Security benefit reduced if it’s credit card debt,” according to Krisstin Petersmarck, a national Social Security advisor and owner of New Horizon Retirement Solutions in Bloomfield Hills, Michigan.
These benefits can’t be taken for consumer or medical debts. They typically can’t be garnished for other legal processes, such as bankruptcy or civil lawsuits, either.
“Social Security is protected from garnishment, but it’s not untouchable,” Bibbo says.
Broadly speaking, Social Security garnishment is allowed to repay the following:
— Child support, alimony or restitution
— Debts owed to the federal government
“I would say the vast majority of garnishments are for child support,” says Rae Hartley Beck, a certified financial planner candidate and former Social Security claims specialist.
[Read: Should You Use Your 401(k) to Pay Off Debt?]
Garnishment Limits for Social Security
The Treasury Offset Program collects past-due payments from Social Security benefits. How much the program can withdraw depends on the type of debt. The following are the upper limits of what can be garnished from Social Security.
— 15% for a federal debt, such as taxes or student loans
— 50% for child support or alimony if a beneficiary is supporting another child or spouse, 55% if the original support order is more than 12 weeks in arrears
— 60% for child support or alimony if a beneficiary does not have another child or spouse, 65% if the original support order is more than 12 weeks in arrears
“There is a rule that they must leave you with at least $750 to live on,” Bibbo says. But that rule only applies to garnishments for federal debts. For child support and alimony, it’s a different story. “There’s no floor to the amount of money garnished (for those reasons).” For example, if you owe child support from years ago and receive $1,000 in Social Security each month, you could have as much as $650 withheld. That leaves you with $350 in the bank.
[Related:How to Solve Social Security Problems Online, Over the Phone or In Person]
Limited Protection for Bank Assets
While Social Security cannot be garnished directly for other debts, it could be pulled from your bank account to repay consumer debts if your financial institution receives a court order for garnishment.
When this occurs, your financial institution must protect two months’ worth of Social Security benefits when fulfilling the order. For instance, if you receive $1,000 a month in Social Security, your bank or credit union must leave $2,000 in your account. The rest can be garnished, regardless of whether that cash came from Social Security or another source.
Most people receive their Social Security via direct deposit, but if you get your payments by check, the above protections do not apply. You’ll need to go to court to retrieve any protected benefits, according to the Consumer Financial Protection Bureau.
Options for Senior Borrowers in Default
If you think you might be at risk of having your Social Security garnished — either for student loans or another reason — the best course of action is to begin making payments before that happens. Talk to the IRS or your loan servicer to see what payment plans might be available.
“If you have a tax lien, theoretically you could go get a personal loan,” Beck says. Assuming you are approved, that loan wouldn’t be subject to Social Security garnishment. Still, it’s not a course of action she recommends. “No option is great,” she says of the choices available to those with delinquent federal debts.
“You can file a hardship (request), however, it’s not likely going to be approved,” Petersmarck says. The bar is high when it comes to proving that garnishment should be waived. “It’s not an easy process, and most people get turned down.”
Free legal help may be available for seniors navigating garnishment issues. The Eldercare Locator, offered by the federal Administration for Community Living, provides referrals to local senior assistance organizations.
More from U.S. News
Trump Proposed Eliminating Social Security Taxes. Here’s the Bill That Could Make It Happen
How Much Could Trump’s Social Security Pick Impact Your Benefits?
What Will the Social Security COLA Raise Be for 2026?
How Much of My Social Security Can Be Garnished? originally appeared on usnews.com
