Latest news with #TreasuryOffsetProgram
Forbes
22-07-2025
- Business
- Forbes
How Federal Debts Can Lead To Social Security Garnishments In 2025
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations. Social Security supports millions of Americans, but it isn't completely off-limits. Many recipients assume their benefits are safe once they arrive each month, but that's not always the case. In some circumstances, the federal government can legally garnish your Social Security payments—especially if you've fallen behind on specific federal debts like taxes or student loans. Since 2002, more Social Security recipients have become vulnerable to garnishment. Through the Federal Payment Levy Program, the IRS can take up to 15% of monthly benefits to cover unpaid federal taxes, even if that reduces payments below $750. There's no minimum protection in these cases. Previously, for nontax federal debts like defaulted student loans, the first $750 of monthly benefits was off-limits under the Debt Collection Improvement Act. However, that protection no longer applies to most payments made after 2002, meaning even more of a retiree's check can now be garnished. If you fall behind on your federal student loans , the government can step in to collect what you owe. It does this through the Treasury Offset Program (TOP), which allows it to take federal payments, including your Social Security checks. Before 2002, the law used to guarantee that you'd keep at least $750 a month after any garnishment. But now the government can take up to 15% of your Social Security benefits—even if your check is less than $750. This garnishment doesn't happen right away. It only kicks in if you default and don't work out a repayment plan or rehab your loan. Since Social Security is a lifeline for many retirees, this change means more people could lose a larger portion of their monthly benefits to repay student loans. Federal law also allows Social Security garnishment for court-ordered payments like child support, alimony or criminal restitution. These garnishments are often higher than the IRS cap—sometimes up to 65% of your benefit, depending on the situation. If the amount owed is large or if you're already subject to multiple garnishments, such as for taxes and child support, they may see most, or even all, of your benefits withheld. This is especially important for anyone with unresolved legal obligations. Even if the original case is decades old, the courts can still collect from your Social Security as long as a valid order exists. Most creditors, like credit card companies or medical debt collectors, cannot directly seize your Social Security benefits. When your benefits are sent straight to your bank account via direct deposit, the law says banks have to protect at least two months' worth of those payments from collection. But there's a catch. If your Social Security deposits get mixed with other cash in your account, or if your bank can't tell which money came from Social Security, those funds might not be safe from collection attempts. And if you receive your benefits by paper check, you don't have these same protections, leaving you even more exposed. To keep your benefits safe, make sure your bank knows which deposits are from Social Security and closely monitor your account. To avoid owing the IRS, filing your tax returns accurately and on time is important. Keeping up with student loan payments and fulfilling child support obligations can also help prevent unexpected collections or garnishments. To easily file your taxes, the best tax filing software inputs your tax forms, identifies possible deductions and provides access to experts when you need assistance. Social Security doesn't guarantee financial immunity. Falling behind on certain federal or court-mandated debts could shrink your benefits fast, especially if you're not proactive. If you're facing one of these issues, it's better to act early and seek help than to wait for a garnishment notice.
Miami Herald
14-06-2025
- Business
- Miami Herald
Suze Orman warns Americans on sudden Social Security problem
American workers recognize that Social Security will be an important source of financial assistance for their everyday expenses during retirement. Bestselling author and former CNBC personal finance editor Suze Orman often highlights the necessity of grasping key aspects of retirement planning to build a stable future. She now issues a significant warning to Americans about Social Security, citing a recent development that poses a serious risk to many retirees' monthly income. Don't miss the move: Subscribe to TheStreet's free daily newsletter Orman has always stressed the importance of timing when it comes to Social Security benefits. Although American workers have the option to start collecting at age 62, she explains that those who do so then end up significantly reducing their monthly payments. To receive their full benefits, individuals must wait until their designated retirement age, which is 67 for those born in 1960 or later. Related: Jean Chatzky sends strong message to Americans on Social Security Orman strongly encourages delaying benefits even further, up to age 70, for those who can afford to do so. She argues that waiting allows payments to grow, ensuring a more substantial financial cushion during retirement. She cautions that claiming benefits too early is a costly mistake, as it prevents individuals from maximizing their monthly income. But now, Orman has a new warning on Social Security - and this one involves a change in government policy regarding repayment of student loans. Getty During the past five years, the federal government has refrained from pursuing repayment from individuals who have defaulted on federal student loans (including reduced Social Security checks). However, that policy shifted in early May when officials announced the reinstatement of various methods to recover outstanding college debt through the Treasury Offset Program. "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," said U.S. Secretary of Education Linda McMahon in an April 12 Department of Education statement. Starting in May, the government began intercepting federal tax refunds from borrowers in default, applying those funds toward their unpaid loan balances. More on retirement: Jean Chatzky shares major statement about Social SecurityShark Tank's Kevin O'Leary has blunt words on 401(k) plansDave Ramsey strongly cautions U.S. workers on Social Security "Beginning in June, Social Security benefits can be seized to offset college debt in default," wrote Orman in an email newsletter, also noting that this may be something parents who borrowed under the federal PLUS loan program ought to be concerned about. "Later this summer, the government has announced it plans to send out notices that it will also garnish wages," Orman added. "Up to 15% of after-tax income can be seized to pay down defaulted student loans." Orman explains that approximately five million borrowers are already in default, meaning they are directly affected by the government's decision to resume collection efforts. She also highlights the fact that another four million borrowers are struggling to keep up with payments and are approaching the 270-day mark of non-payment - the point at which their loans officially transition from delinquent to default. Orman stresses the urgency of the situation, warning that those on the brink of default could soon face serious financial consequences if they don't take action. Related: Tony Robbins sends strong message to Americans on 401(k)s, IRAs In order to avoid reduced Social Security benefits, Orman advises borrowers to first verify their payment status to stay informed about their federal student loans. She explains that every borrower has a Federal Student Aid ID number, which they can use to access their account on the Federal Student Aid website. Through this dashboard, they can review their payment history, check for any outstanding balances, and identify their loan servicer - the company responsible for handling their loan repayments on behalf of the government. Orman emphasizes the importance of keeping their contact information updated with the loan servicer. "I hope everyone with student debt will stand in their truth and look into their status and make it a priority to restart payments with a loan repayment plan," Orman wrote. "Ignoring that this is happening or thinking you can hide from the government debt collectors will only make things worse." Related: Scott Galloway bluntly predicts major change for Netflix The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
CNBC
12-06-2025
- Business
- CNBC
Education Department wanted Treasury to help manage student loans
The U.S. Department of Education planned for the Treasury Department to take a hand in managing the country's $1.6 trillion student loan portfolio, recent court documents show. "The Department had been negotiating a memorandum of understanding with the Treasury Department regarding student loan management," Rachel Oglesby, the chief of staff at the Education Dept., said in a court declaration filed late on Tuesday. The agreement involved moving nine Education Dept. employees from the agency's Federal Student Aid Default Collections Unit to Treasury "to discuss collections activities," a spokesperson for the Education Department told CNBC. Education Department plans with the Treasury Department are now on hold after U.S. District Judge Myong Joun in Boston blocked the Trump administration on May 22 from its efforts to dismantle the Education Department. Joun ordered the department to rehire the more than 1,300 employees affected by mass layoffs in March, and blocked the department from transferring student loans to the Small Business Administration. More from Personal Finance:Trump's 'big beautiful' bill could curb low-income tax creditWhat a 'revenge tax' in Trump's spending bill means for investorsWhat's happening with unemployed Americans — in 5 charts Experts say the Treasury talks are more evidence that the Trump administration hopes to reduce the role of the Education Department. President Donald Trump said on March 21 that the Small Business Administration, instead of the Education Department, would handle the country's debt. "They're all set for it," the president said of the SBA, speaking to reporters in the Oval Office. "They're waiting for it." At the time of Trump's announcement that student loans would move to the SBA, experts had said the next most logical agency would have been Treasury, since it already plays a role in collecting past-due debts from Americans through the Treasury Offset Program. Still, financial aid expert Mark Kantrowitz pointed out that The Higher Education Act of 1965 is "very clear" that the Education Department's Federal Student Aid office is "responsible for student loans." "It will require an act of Congress," Kantrowitz said, to move the loans to either the SBA or Treasury. Consumer advocates express worries that the mass transfer of accounts to another agency could trigger errors, or compromise borrowers' privacy. They also raised concerns about how a change in agency might affect unique student loan protections, and programs such as Public Service Loan Forgiveness. More than 42 million Americans hold federal student loans.
Yahoo
11-06-2025
- Business
- Yahoo
Can (and should) the U.S. Treasury Department manage federal student loans?
The U.S. Department of the Treasury is a better match than the Small Business Administration (SBA) for collecting federal student loans, but not ideal. The U.S. Treasury's pilot collection program for defaulted federal student loans underperformed private collection agencies due to leniency. Using the wage withholding system for student loan payments to reduce defaults and collection costs is feasible but complex. Solutions for wage withholding involve modifying repayment plans to be based solely on earned income. The federal student loan portfolio is currently managed by Federal Student Aid (FSA) within the U.S. Department of Education. There are proposals to shift this responsibility to other agencies, such as the U.S. Department of the Treasury, as suggested by The Heritage Foundation's Project 2025 Proposal, or the Small Business Administration (SBA), which the Trump administration has championed. Let's explore the feasibility of having the U.S. Department of the Treasury manage the federal student loan portfolio, perhaps by leveraging the U.S. tax system for direct loan collection. The Small Business Administration (SBA) presents a significant mismatch for managing the federal student loan portfolio. The SBA's core expertise lies in facilitating business lending, primarily through a guaranteed loan program where private banks issue loans and the government offers protection against default. So, the SBA has minimal experience in managing a large-scale federal direct loan program. The guaranteed loan model stands in stark contrast to the vast majority of the federal student loan portfolio, where all new loans are originated through the Direct Loan Program. Only about 10 percent of federal student loan dollars remain in the FFEL program, a guaranteed student loan program that ended in 2010. Furthermore, the sheer scale and inherent complexity of the federal student loan portfolio — which involves extensive customer service demands for millions of borrowers — dwarf the operational scope of the SBA's existing loan programs. Learn more: SBA loan statistics In contrast, the U.S. Department of the Treasury has expertise in managing money and direct interactions with the public, particularly through its tax collection functions. The U.S. Treasury already plays a role in federal debt recovery via the Treasury Offset Program (TOP), which collects defaulted federal student loans. Moreover, federal student loan interest rates are based on the 10-year Treasury Note, and the loans themselves are ultimately funded by the U.S. Treasury. However, a 2014-2015 pilot project designed to test the Treasury's effectiveness in collecting defaulted federal student loans went poorly. This randomized trial, influenced by proposed legislation, evaluated the 'efficiency and effectiveness' of Bureau of the Fiscal Service employees as potential debt collectors and used private collection agencies (PCAs) as a control group. The trial revealed that the U.S. Treasury achieved a mere 4 percent success rate in collecting defaulted loans, significantly underperforming the control group's 5.5 percent success rate. Additionally, the cost incurred by the Treasury for these collections was greater than that of the PCAs. Collecting federal student loans is more complicated than collecting other federal debts. Additionally, the Treasury was not as aggressive as the private collection agencies (PCAs) and they did not do enough to get the borrowers on the phone. Initially, the Treasury limited borrower contact to a maximum of one call per week, far fewer than the typical collection agency. The Treasury also did not threaten wage garnishment during the first 11 months of trying to collect a defaulted federal student loan. After the Treasury sent out wage garnishment notices, call-in rates tripled and 22 percent of these borrowers engaged in discussions about repayment options. This summer, 5.3 million defaulted borrowers will receive a notice from the Treasury that their earnings will be subject to administrative wage garnishment. Learn more The idea of integrating student loan collections into the wage withholding system, as some countries do, was explored in a 1995 feasibility study. Doing so would give the Treasury a powerful tool for collecting student loan payments. However, launching such a system in the U.S. would be complex: Income-driven repayment (IDR) plans and AGI: Income-driven repayment plans are based on adjusted gross income (AGI) from a prior tax year, which includes both earned and unearned income. Employers, however, only have information about a borrower's current earned income, not unearned income. Withholding based on AGI would require a complicated and impractical annual reconciliation process due to the variability of unearned income. Multiple jobs: Some taxpayers have multiple jobs, which could complicate withholding calculations if payments are based on total or discretionary income, as employers may not be aware of other employment or spousal income. Family size and dependents: Some income-driven repayment plans, such as Income-Contingent Repayment, Income-Based Repayment and Pay As You Earn, factor in family size or the number of dependents. Employers typically do not have this information. Despite these challenges, there are several solutions that could adapt the student loan repayment plans to better fit a withholding system. Basing income-driven repayment on earned income: Basing income-driven repayment plans solely on earned income, rather than AGI, would simplify withholding. Analysis of 2022 IRS Statistics of Income shows that earned income represents a substantial portion of AGI for low- and moderate-income borrowers (e.g., 88 percent for AGI under $50,000 and 81 percent for AGI under $100,000), suggesting minimal impact on payments for these groups. Borrowers with very high AGI ($500,000 or more) who have a low percentage of earned income could potentially be limited to a standard repayment plan. Borrower disclosure of family size: Borrowers could inform employers about their family size or the number of dependents, mirroring the current W-4 form process. Self-reporting of level payment amounts: Borrowers on a level repayment plan, such as standard repayment, could provide their employers with their monthly payment amount. Employers would withhold the higher of this amount or a percentage of earned income. Ending withholding: Borrowers could present their employers with a zero-balance statement from the federal government to halt withholdings. There are several benefits of using the wage withholding system to collect student loan payments. It would avoid the cost of collections, which is over $1 billion a year, and significantly reduce default rates. Furthermore, this system would base payments on current income, as opposed to prior income, naturally adjusting to income fluctuations. It is conceptually similar to administrative wage garnishment (AWG), which is based on 15 percent of disposable income. The current administration must weigh proposals to shift the oversight of the federal student loan portfolio to another federal agency, such as the U.S. Treasury or the Small Business Administration. The Treasury has more relevant experience and expertise than the SBA. It has an existing role in federal debt recovery and more experience in providing customer service to consumers. Past studies indicate that transferring responsibility for collecting on federal student loans to the Treasury might not yield the same outcomes as the Education Department's current system. However, integrating student loan collections into the wage withholding system, while complex to implement, might reduce default rates and save on collection costs. Current federal student loan borrowers should know that none of these proposed changes are set in stone and none will happen without warning. Shifting oversight over the federal student loan portfolio to another federal agency will require an act of Congress.
Miami Herald
07-06-2025
- Business
- Miami Herald
Social Security garnishments spark alarm
Hundreds of thousands of Social Security recipients were jolted recently by notices warning that their benefits would be reduced starting in June. The reason? Delinquent federal student loans. However, in a last-minute reversal, the Trump administration announced a pause on the garnishment of Social Security checks for borrowers in default. Don't miss the move: Subscribe to TheStreet's free daily newsletter The initial warnings, issued by the Departments of Education and Treasury, triggered widespread concern among older Americans, especially those already living on fixed incomes. While the temporary suspension may offer short-term relief, it does little to clarify the long-term picture or ease the financial vulnerability of retirees with government debt. Tania Melnyczuk on Unsplash According to Elaine Floyd, director of retirement and life planning at Horsesmouth, garnishment of Social Security and other federal retirement benefits is authorized under the Treasury Offset Program for several types of unpaid federal debts: Unpaid federal student loans: "If you've defaulted on your federal student loans, the government can garnish up to 15% of your monthly Social Security payment without giving you a court hearing or additional warnings," said Floyd. "They must leave you with at least $750 per month. For example, if your benefit is $3,000 per month, they can take $450 (15%). If your benefit is $800 per month, they can take no more than $50, ensuring that you can keep at least $750."Unpaid federal taxes: Garnishments for back taxes are handled under the Federal Payment Levy Program (FPLP) and continue until the debt is paid in full. "The $750 protection applied to other loans does not apply to federal income tax debts," Floyd said. "A court order is not required." While the IRS typically sends multiple warning letters, retirement, disability, and survivor benefits remain subject to garnishment-though Supplemental Security Income (SSI), lump-sum death payments, and children's benefits are obligations: "For child support or alimony, the Consumer Credit Protection Act (CCPA) limits garnishment of Social Security benefits to a maximum of 50% if you're supporting a spouse or child other than the one covered by the court order," said Floyd. "If you are not supporting another spouse or child, the limit is 60%. Additionally, if the support is 12 or more weeks in arrears, an additional 5% can be garnished." Floyd emphasized that the Social Security Administration (SSA) cannot reverse garnishment once it begins. "It is therefore preferable to work out debt repayment arrangements directly with the creditor in question before garnishment of Social Security starts." Options may include installment agreements or offers in compromise with the IRS. "Even though taxes would still be owed, taking such measures would forestall garnishment by the IRS." She said settlement, rehabilitation, or consolidation could be considered for student loans in default. "Obviously, debt management and repayment options are varied and complex." She warned that bankruptcy typically is not a solution. "Taxes, federal student loans, and child support - the very loans Social Security can be garnished for - may not be discharged in bankruptcy." Related: How the IRS taxes Social Security income in retirement In January, the average monthly Social Security retirement benefit was estimated to be $1,976, and 68 million Americans received Social Security benefits, and 7.5 million received Supplemental Security Income (SSI) benefits. Heather Schreiber, founder of HLS Retirement Consulting, said most people are unaware of the history and scope of the Treasury Offset Program. "Most consumers are unaware of the history of the Treasury Offset Program," she said. "It was created back in 1996 under then-President Clinton and had wide bipartisan support." She explained that the program was designed to collect delinquent debts such as federal student loans, unpaid federal and state taxes, child support, and SSA overpayments by intercepting federal payments like tax refunds, Social Security and Railroad Retirement benefits (capped at 15%), and federal unemployment compensation. Schreiber noted that when the program was suspended in 2020 due to the COVID-19 pandemic, some may have assumed it was permanently repealed. "I'm sure many believed (if they were aware that the TOP program existed) that the program was permanently repealed." Its reinstatement, she said, is happening amid a wave of financial challenges for retirees. "Combine its reinstatement with all the other news - of inflation, retirees' concerns about being able to survive in retirement, reinstatement of a quick 100% now down to 50% overpayment recovery rate, the solvency issue that could result in benefit cuts across the board, and now a potential cut to benefits for those who have defaulted on student loans," said Schreiber. "It's a Molotov cocktail that only heightens concerns on an already fearful retired population who is struggling." Related: Social Security income tax deduction clears critical hurdle She welcomed the pause. "So, I am certainly glad that the Department of Education put this on hold before it came out of the gate," Schreiber said. "All the more reason that consumers planning for retirement should find a knowledgeable adviser to help them better plan for and navigate the road to and through retirement." Jim Blankenship, a certified financial planner with Blankenship Financial Planning, said options for those already facing garnishment are limited. "Unfortunately, this situation doesn't come with many escape options," he said. Blankenship said the usual advice - reduce expenses, increase income, or sell possessions - often falls flat for those living on Social Security alone. "The age-old advice of 'reduce expenses,' 'find additional sources of income,' or 'sell some possessions' becomes hollow when the expenses are mostly fixed, taking on employment at a late age is not desired, and there are no possessions to sell," he said. Blankenship stressed that the debt must be dealt with directly. "The loan and the payment aren't going to go away - so reducing that outflow is not an answer," he said. "Realize that you're in a position where you must make hard choices about prioritizing things - housing, food, and medical expenses should come first, and literally everything else is up for debate." Related: Medicare recipients face a growing problem Solutions might include downsizing, renting out part of one's home, or seeking part-time work. "Some level of employment doesn't have to be out of the question, and many businesses are clamoring for employees these days." He encouraged a detailed review of all expenses. "If there are any extras in your month-to-month outflow of expenses that can be reduced, now is the time to do it," said Blankenship. That includes discretionary spending like dining out, entertainment, and subscriptions. "You may have to cut down on your regular coffee klatch, or dining out. Review your cell phone plan, review monthly subscriptions (including streaming services and the like) to see if there are reductions that can be made. Review insurance coverage - maybe increase your deductibles, if that would have an appreciable reduction in your premiums." Got questions about retirement, email The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
