Will Student Loan Debt Reduce Your Retirement Benefits?

Takeaways

• The U.S. Department of Education has announced it will begin forced collections on defaulted federal student loan debt, affecting more than 5 million borrowers with potential wage garnishment, tax refund seizure, and reduced federal benefits.
• About 2.9 million Americans aged 62 and older have student loan debt. Nearly 500,000 older borrowers who are in default may see their Social Security benefits cut back by up to 15 percent, potentially leading to financial hardship and poverty.
• Options available to borrowers facing default may include loan rehabilitation, consolidation, and income-driven repayment plans. Debtors are encouraged to contact their loan servicers or the Default Resolution Group for assistance.

In early May 2025, the Trump administration announced it will be reinstating involuntary collections on defaulted federal student loans. This ends a five-year pause that had been initiated during the COVID-19 pandemic. This policy shift affects approximately 5.3 million borrowers currently in default. As a result, these borrowers may expect to face wage garnishment, tax refund seizures, and reductions in federal benefits, such as Social Security payments.

Collections will begin in the coming months on federal student loan programs that include Perkins Loans, Pell Grants, and Federal Family Education Loans.

Older and Retired Borrowers

As of the first quarter of 2025, there are around 2.9 million Americans aged 62 and older who have student loan debt. That is a 71 percent increase from 2017, when there were 1.7 million such borrowers. According to a Consumer Financial Protection Bureau (CFPB) report from earlier this year, almost half a million borrowers in this age group who are likely receiving Social Security benefits have defaulted on their student loans. Failing to submit payments toward federal student loan debt for more than nine months puts borrowers in default.

The federal government can only withhold so much from one’s Social Security benefits. To repay student loans, the feds can take up to 15 percent of your monthly Social Security check as long as the remaining balance is at least $750. (To put that into perspective, the average Social Security retirement benefit as of April was $1,999 per month. A 15 percent reduction would shift one’s monthly payment down to about $1,700.)

The baseline amount of $750, which has not been increased in decades, is hundreds of dollars below the monthly poverty level. The CFPB report suggests that these forced collections could therefore “push older borrowers into poverty.”

In an interview with CNBC last month, Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, echoed this concern.

“Losing a portion of their Social Security benefits to repay student loans could mean not having enough for food, transportation to medical appointments, or other based necessities,” she said.

Key Components of the Policy

According to a statement from the United States Department of Education, its Office of Federal Student Aid (FSA) is sending a series of communications regarding repayment to borrowers who are currently in default. Offsets to federal benefit payments and wage garnishment are slated to begin this summer.

The federal government is using the following tactics to force student loan repayment:

• Treasury Offset Program. Starting May 5, 2025, the Department of Education began referring approximately 195,000 defaulted loans to the Treasury Offset Program. This program allows the government to withhold federal payments, including tax refunds and up to 15 percent of Social Security benefits, to recover unpaid student loans. Debtors must receive notifications at least 60 days before withholding of payments begins.
• Wage garnishment. Some borrowers in default may have up to 15 percent of their disposable pay garnished.
• Immediate repayment. Upon default, the full loan balance becomes immediately due, and borrowers lose access to deferment, forbearance, and income-driven repayment plans.

Potential Effects on Borrowers

The resumption of collections has significant implications for borrowers, including:

• Financial hardship. Many borrowers, particularly low-income individuals and seniors on fixed incomes, may struggle to meet basic needs amid reduced income from garnished wages or benefits.
• Credit consequences. Defaulting on student loans can lead to a significant drop in credit scores, affecting a borrower's ability to secure housing, employment, or additional credit.
• Emotional Impact. Debtors may also suffer from chronic stress or a sense of powerlessness under the weight of financial strain.

Institutional Accountability

The administration has also warned educational institutions that high default rates among former students could jeopardize their access to federal student aid programs. Schools with default rates exceeding certain thresholds risk losing eligibility, prompting calls for improved financial counseling and support for students.

Resources for Borrowers

Borrowers facing default have options to mitigate the effects:

• Loan rehabilitation. Making a certain number of consecutive, on-time payments can restore a loan to good standing.
• Loan consolidation. Combining multiple federal loans into one can reset the default status. However, keep in mind that it may result in higher interest costs over time.
• Default resolution group. The Department of Education’s Default Resolution Group helps in exploring repayment options and resolving defaults.
• Income-Driven Repayment (IDR) Plan. Borrowers can apply for an Income-Driven Repayment (IDR) plan, which bases your federal student loan payment on your monthly income and the size of your family. An IDR plan could help make payments more affordable for older debtors living on a fixed income. The Office of Federal Student Aid said it has implemented an enhanced process to make enrolling in an IDR plan easier for borrowers.

Next Steps for Older Adults With Student Loan Debt

Borrowers are encouraged to proactively contact their loan servicers or the Default Resolution Group to discuss available options and avoid the severe consequences of default.

Older adults who are concerned about their government benefits being used to pay for outstanding student loans may also consider contacting an elder law attorney in their area to learn about their rights and the options available to them.

For additional reading about student loan debt, check out the following articles:

• How to Deal With Student Loan Debt as You Age
• Can Social Security Benefits Be Garnished to Pay Debts?
• How Changes in the Student Loan Landscape May Affect You
• Does Co-Signing a Student Loan Affect My Ability to Qualify for Medicaid?
• The Best Ways to Pay Off Debt Before You Retire