Department of Education Outlines Stronger Protections for Student Loan Borrowers in Default

January 16, 2025 — Press Release

NCLC and New America Foundation Applaud Protection of Social Security Benefits from Seizure to Collect Student Debt

WASHINGTON – Yesterday, the U.S. Department of Education released a policy memo highlighting its commitment to helping borrowers establish federal student loan payments they can afford and avoid entering default, and to improve access to affordable payments for those already in default. The memo includes a cap on collection of Social Security benefits to better align with amounts owed in an income-based repayment plan and provides clarity ahead of the Department’s plans to resume default penalties and mandatory collections later this year. 

“While we are concerned that soon millions of Americans struggling with student loan debt will face seizure of their wages, tax refunds, and Social Security benefits for the first time in five years, we are pleased to see the Department of Education has committed to opening access to more affordable payments for borrowers in default and to protecting borrowers who rely on Social Security from being pushed into poverty as a result of efforts to collect student loan debt,” said Abby Shafroth, co-director of advocacy at the National Consumer Law Center.  

Federal student loans enter default after a borrower falls behind on payments for nine months. Due to the pandemic payment pause and subsequent temporary protections as borrowers resumed repayment, most student loan borrowers have been protected from defaulting and from default collections since early 2020. However, when default and collections resume this year, almost 6 million borrowers currently in default and additional borrowers who newly default will face forced collections, including the seizure of wages, tax refunds, and Social Security benefits. The amount seized is often well beyond what the borrower can afford and significantly greater than the minimum payment required had the borrower been enrolled in an income-driven repayment (IDR) plan. 

Actions outlined in the Department’s memo are designed to help borrowers remain current on their loans, and they also provide new protection against the impoverishment of older and disabled borrowers who fall behind. Borrowers receiving Social Security retirement and disability benefits will now have a more reasonable amount of their benefits protected from collections, $1,883 a month (150% of the federal poverty guideline). This caps collection from Social Security benefits at the same amount borrowers would pay if enrolled in an income-based repayment plan. Previously, just $750 a month was protected from seizure — a protection established in 1996 and never adjusted for inflation. The Department’s announcement follows a report by the Consumer Financial Protection Bureau last week detailing how seizure of Social Security benefits to collect student debt has led to an increasing number of older adults being pushed into poverty and financial hardship as a result of student debt, with devastating impacts. For example, the CFPB noted that half of Social Security recipients with defaulted loans report forgoing prescription medication or doctor’s visits due to cost.  

In a September fact sheet, NCLC and New America Foundation called for protecting more Social Security benefits and capping collections of student loans at the amount borrowers would owe in an income-driven repayment plan to protect the financial security of the growing number of older adults with student loan debt. 

“When collections restart this year, approximately 800,000 borrowers aged 62 and older who are in default will face seizure of their tax refunds, wages, and Social Security benefits,” said Tia Caldwell, senior policy analyst for education, opportunity, and mobility at New America. “Protecting more of their Social Security benefits means fewer older adults will be forced into poverty as a result of student debt, and is an important first step toward addressing the growing impact of student debt on older adults.”

Related Resources

• The Growing Impact of Student Loan Debt on Older Adults, September 19, 2024 (New America and National Consumer Law Center)
• Social Security Offsets and Defaulted Student Loans, January 8, 2025 (Consumer Financial Protection Bureau)
• Pushed into Poverty: How Student Loan Collections Threaten the Financial Security of Older Americans, May 9, 2017 (National Consumer Law Center)
• Student Loan Borrower Assistance Project
• Student Loan Toolkit, May, 20, 2024