For Unpaid College Loans, Feds Dock Social Security

More retirees are falling behind on student debt, and Uncle Sam is coming after their benefits

It's no secret that falling behind on student loan payments can squash a borrower's hopes of building savings, buying a home or even finding work. Now, thousands of retirees are learning that defaulting on student-debt can threaten something that used to be untouchable: their Social Security benefits.

According to government data, compiled by the Treasury Department at the request of SmartMoney.com, the federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans. From January through August 6, the government reduced the size of roughly 115,000 retirees' Social Security checks on those grounds. That's nearly double the pace of the department's enforcement in 2011; it's up from around 60,000 cases in all of 2007 and just 6 cases in 2000.

Tens of thousands of retirees have fallen behind on student loans--and the feds are coming after their Social Security benefits. SmartMoney's AnnaMaria Andriotis has details on Lunch Break.

The amount that the government withholds varies widely, though it runs up to 15%. Assuming the average monthly Social Security benefit for a retired worker of $1,234, that could mean a monthly haircut of almost $190. "This is going to catch an awful lot of people off guard and wreak havoc on their financial lives," says Sheryl Garrett, a financial planner in Eureka Springs, Ark.

Many of these retirees aren't even in hock for their own educations. Consumer advocates say that in the majority of the cases they've seen, the borrowers went into debt later in life to help defray education costs for their children or other dependents. Harold Grodberg, an elder law attorney in Bayonne, N.J., says he's worked with at least six clients in the past two years whose problems started with loans they signed up for to help pay for their grandchildren's tuition. Other attorneys say they're working with older borrowers who had signed up for the federal PLUS loan -- a loan for parents of undergraduates -- to cover tuition costs. Other retirees took out federal loans when they returned to college in midlife, and a few are carrying debt from their own undergraduate or graduate-school years. (No statistics track exactly how many of the defaulting loans fall into which category.

Most consumer advocates and attorneys who work with seniors in this predicament told SmartMoney.com that their clients were unwilling to speak on the record, because of shame or fear. But they all stress that stakes involved can become very high for older people on a budget. Deanne Loonin, a staff attorney at the National Consumer Law Center in Boston, says she's been working with an 83-year-old veteran whose Social Security benefits have been reduced for the past five years. The client fell behind on a federal loan that he signed up for in the '90s to help with his son's tuition costs; Loonin says the government's cuts have left the client without enough cash to pay for medications for heart problems and other ailments.

Roughly 2.2 million student-loan debtors were 60 and older during the first quarter of 2012, and nearly 10% of their loans were 90 days or more past due, up from 6% during the first quarter of 2005, according to the Federal Reserve Bank of New York. "It's really a unique problem we haven't had to face before, and it's only going to grow," says Robert Applebaum, founder of Student Debt Crisis, a nonprofit advocacy group in Staten Island, N.Y.

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Technology and the world of educational possibilities

My first PhD-level course at the University of Arkansas was math for economic analysis. I entered the course with two degrees in elementary education, but the highest math course I had taken was college algebra for educators. As you can imagine, I was not prepared for the course.

I spent hours studying content that it was assumed an econ PhD student would already know and regularly received help from classmates. The most help, however, came from a former hedge fund analyst and professors at MIT. While I completed my math for economic analysis course, I also watched MIT lectures on linear algebra. I visited Khan Academy regularly to learn how to use the chain rule or product rule when finding derivatives. The videos were more effective in teaching me than my professor, because I could pause the videos, re-watch them, and practice as they played. I am sure the professor would have been quite frustrated if I demanded that he repeat what he said as much as I replayed those videos.

Recently, one of the founders of Coursera, a free online program that delivers free, high-quality college level courses to people around the world, gave a TED Talk on the ability of technology to reinvent how we deliver education (see also Salman Khan’s TED Talk).

High-quality education programs are increasingly being provided for free. There is a real opportunity for schools, especially K-12 schools, to see tremendous benefits from these programs. Imagine a high school student taking introduction to finance, while the student at the computer next to him or her takes Greek and Roman mythology. The technology is available, so what is stopping us from utilizing the power of technology to change how we educate students? Tradition and government regulation.

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Tuition fee rise HAS turned thousands of middle class British students off going to university

No surprise to any economist

Thousands of middle-class pupils have been priced out of studying at top universities, according to an independent commission.

The most prestigious universities have seen a sharper drop in applications than less selective institutions following the controversial tripling of tuition fees.

Demand for places at the leading universities, which charge the highest fees, has fallen most sharply among teenagers from wealthier families, the panel found.

Most middle and higher-income students fail to qualify for grants, bursaries or fee discounts and take out a maximum loan to cover fees and living costs.

The commission, set up to monitor the impact of the £9,000-a-year maximum fees coming into effect this autumn, found early evidence that the fees hike is denting university aspirations.

In today’s report, it points out that the number of English applicants seeking university places this autumn has slumped by 37,000 from the 2010 level while demand in the other home nations, where fees are lower or non-existent, has remained buoyant.

The percentage of 18-year-olds from the poorest fifth of households – earning £15,000 a year or less – who applied to at least one of the 30 most selective English universities rose fractionally to eight per cent this year.

Among households earning up to £30,000, the percentage dipped only slightly from 12.9 per cent to 12.7 per cent.

Demand dipped more sharply among middle-income families earning between £30,000 and £50,0000, falling 0.5 points to 17.3 per cent.  Among higher earners, with household incomes of £50,000 to £75,000, the proportion of applicants dropped 1.1 points to 24 per cent.  And among the richest fifth of the country, earning £75,000 and above, demand slid from 38 per cent in 2010 to 37.1 per cent this year.

The report said that among 18- and 19-year-olds applying to the top universities, there are ‘larger relative declines from applicants in the most advantaged areas’.

Will Hutton, chairman of the commission, said the panel was ‘pleased to see that at this stage there has been no relative drop-off in applicants from less advantaged neighbourhoods’.

Dr Wendy Piatt, director general of the Russell Group, representing 24 leading universities, said: ‘Prospective students know that in tough economic times a degree, especially one from a leading university, remains a smart investment.

‘We are especially pleased that .... the increase in fees has not had a disproportionate impact on application rates for prospective students from more disadvantaged backgrounds.’

Liam Burns, president of the National Union of Students, said: ‘After next week’s A-level results the clearing process will start, and we remain concerned that applicants, particularly those from certain backgrounds, may not be in a position to choose whether and where to study.’

The Department for Business said: ‘The proportion of English school-leavers applying to university is the second highest on record and it’s still not too late to apply.’

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