Pay student loans or lose Social Security pay

[SoCalDem]

Posted on Mon, Mar. 06, 2006
http://www.miami.com/mld/miamiherald/business/special_packages/business_monday/14013051.htm

Ask Doctor Law

Pay student loans or lose Social Security pay

By Martin E. Segalwww.dr-law.comQ: I recently applied for early social security benefits at age 62. During my meeting with a government representative, I was told that I had $20,000 of unpaid student loans outstanding from many years ago when I attended college and because of a new court ruling, that amount would be deducted from my benefits. To tell the truth, I did receive the loans but had forgotten about them after so many years, and the government never contacted me demanding collection. Can the government legally charge me now? It seems unfair, especially if due to financial problems I can't afford to repay the loans now and need my benefits to live on.
-- ``Troubled Retiree''in West Palm Beach

A: Unfortunately for you, the U.S. Supreme Court unanimously decided in December 2005 that the government can seize Social Security benefits to pay off old student loans, in Lockhart v. U.S. (546 U.S.(04-881) 2005). The plaintiff in that case was a 67-year old retiree unemployed since 1981 and disabled after double heart bypass surgery and related health problems. He lived solely on his $874 monthly benefits. He had incurred $80,000 of student loans to attend various colleges back in the 1980s. When notified his benefits would be cut by 15 percent to repay his loans, he acted as his own attorney and filed an injunction action in federal court to block the Social Security offsets.

The trial judge dismissed his case and that ruling was affirmed in Lockhart's appeal to the 9th Circuit court. He succeeded in getting the U.S. Supreme Court to hear the case, but it unanimously affirmed the prior ruling.

Lower courts had been divided for years on this issue due to conflicting federal laws.
The Debt Collection Act of 1982 imposed a 10-year time limit for collecting amounts due the government, and Lockhart argued that his benefits couldn't be reduced because they were more than 10 years old. But the Higher Education Technical Amendments of 1991 eliminated time limitations to collect certain loans and, as the Supreme Court pointed out in its decision, The Debt Collection Improvement Act of 1996 specifically stated that ''all payments due an individual under the Social Security Act shall be subject to offset under this section.'' (This offset allows government garnishment of up to 15 percent of most Social Security benefits to repay defaulted student loans.)

The practical impact of the new case is far-reaching. For years the U.S. government has been criticized for not developing an effective plan to recover unpaid student loans, thus costing taxpayers huge amounts of money. According to the Bush administration, the current amount of outstanding student loans exceeds $33 billion, of which $7.4 billion is delinquent and $5.7 billion is over 10 years old.

Supporters of Lockhart say it creates a long-needed collection procedure for unpaid student loans.
Critics of the decision suggest the government's failure to collect these debts within 10 years should result in cancellation, because to do otherwise effectively repeals part of the Social Security law to the detriment of financially vulnerable recipients.