The US Department of Education (ED) handles the student loans of about 40 million US citizens, holding on to about $1.6 Trillion in debt--which is considered an asset to the US government. And ED-FSA (Federal Student Aid) hires tens of thousands of workers, mostly contractors, to service the debt. But that could change in a few years. If Donald Trump is elected President.
Under President Trump, debtors might expect that their loans to be transferred over to large corporations--at some point--with the sale being used to reduce the federal deficit, and to cut labor at ED. This would aid in the effort to eliminate the US Department of Education, as Trump has promised on the campaign trail.
Selling off the student loan debt portfolio may or may not require approval from anyone outside of the President. At least one study, by McKinsey & Company, has already been conducted regarding this possibility.
In 2019, the Trump administration hired McKinsey to analyze the $1.5 trillion federal student loan portfolio. This analysis was part of a broader effort to explore options for managing the portfolio, including potentially selling off some of the debt. Results were never published. The analysis was conducted alongside a study by FI Consulting, which focused on the economic value of the portfolio, noting that the valuation could vary depending on future default rates, prepayment rates, and economic conditions.
The new owners of the sold off debt would most likely be big banks and other large companies, both domestic and foreign, that find value in the debt. There would be political and social resistance. And many questions would need to be answered, in detail.
Would large banks or other large corporations be better stewards of the debt?
Would the bidding be transparent?
Would consumers be able to challenge loan repayments or ask for forgiveness?
What would happen to the contracts of the existing debt servicers?
Will this expand the existing Student Loan Asset-Backed Securities market?
It's commonly known that US student loan debt is now about $1.7 trillion and that more than 44 million Americans are laden with this debt. It's also known that student debt is not a problem for everyone who goes to college or everyone who takes out loans.
Student loan debt is not equally distributed: while the children of elites can go to school without incurring debt and find meaningful work after graduation, working families are burdened because so many cannot find decent, gainful employment after dropping out or even after graduating from college--work that would enable them to repay their loans.
Those who attend subprime colleges, and who take the wrong majors, may incur debt they can never repay.
And the multitude of debtors in between, the many millions going to less than elite schools, are having to restrict their dreams as they pay back their loans.
The US Department of Education and other organizations publish important information on student loan debt. The College Scorecard, for example, gives consumers information on the debt they can expect, gainful employment after attending, and the numbers on student loan repayment. The Washington Monthly also ranks colleges, and important numbers, like social mobility rankings and amount of principal paid are in the rankings. The Century Foundation and The Institute for College Access and Success (TICAS) also contribute to our knowledge.
But there are glaring gaps in our current knowledge about student loan debt, knowledge necessary for establishing greater transparency and accountability.
One of the most important knowledge gaps is in learning about student debt by institution. In 2016, Adam Looney and Constantine Yannelis presented a conference paper on student loan debt that listed student loan debt by institution.
Table 5 in this report showed an important aspect of the debt, of accumulated debt, the percent of principal still owed on debt, and the 5-year student loan default rate. University of Phoenix attendees had an estimated $35 billion in accumulated debt, outpacing Walden University. And Argosy, Strayer, Capella, DeVry, American Intercontinental, and Nova Southeastern attendees owed more money than the principal of their loans, 5 years after the loans were taken out. Kaplan University (know known as Purdue University Global) had a 5-year student loan default rate of 53 percent, and Ashford University (know known as University of Arizona, Global Campus) and Colorado Technical Institute had 5-year student loan default rates of 47 percent. These subprime colleges, in effect, were draining the student loan portfolio while providing a service that hurt many of their customers.
Even some big brand name schools likeNYU, University of Southern California, Penn State, Arizona State University, Ohio State, University of Minnesota, Michigan State, Rutgers, Temple, UCLA, and Indiana University had students with enormous amounts of debt that they were having to pay off.
The data in this study were from 2009 and 2014. What has happened since then at the institutional level? What schools today are draining the student loan portfolio and financially crippling those who have attended? Consumers and tax payers should be allowed to know.
The Higher Education Inquirer has made a number of Freedom of Information Act (FOIA) requests to the US Department of Education. Here's our current list.
23-01436-F
The Higher Education Inquirer is requesting copies of the current contracts between the US Department of Education and Maximus (including but not limited to subsidiaries such as AidVantage). If this is not possible we would like the reported dollar amount for each contract. This request is part of a larger effort to assess the student loan debt portfolio. (Date Range for Record Search: From 01/01/2010 To 04/03/2023)
23-01426-F
The
Higher Education Inquirer is requesting the dollar amount of student
loan funds issued to for-profit colleges each year from 1972 to 2021.
We will accept interim or partial data. (Date Range for Record Search:
From 01/01/1973 To 04/03/2022)
23-01369-F
The
Higher Education Inquirer is requesting an estimate of the number of
student loans in the student loan portfolio that originated (1) before
1978, (2) before 1983, (3) before 1988, and (4) before 1993. This is
part of a larger effort to understand the estimated $674B in
unrecoverable student loan debt. (Date Range for Record Search: From
01/01/2023 To 03/28/2023)
23-01324-F
The
Higher Education Inquirer is requesting a count of the number of
Borrower Defense to Repayment claims against South University and the
Art Institutes, in the Consumer Engagement Management System (CEMS) up
to January 1, 2023. We would also like to know if their parent company,
Education Principle Foundation (EPF), is listed as the owner of both
schools in the CEMS computer database. (Date Range for Record Search:
From 01/01/2023 To 03/22/2023)
23-01263-F
The
Higher Education Inquirer is requesting a list of all the
variables/categories in the Consumer Engagement Management System
(CEMS). CEMS is mentioned in FOIA 22-01683F filed by the National
Student Legal Defense Network. (Date Range for Record Search: From
01/01/2023 To 03/16/2023)
23-00865-F
We
are requesting an accounting of US Department of Education Borrower
Defense to Repayment (BD) claims against the University of Phoenix.
Specifically, we are asking for the (1) number of BD claims, (2) the
number processed, and (3) the number approved. The date range is from
February 20, 2016 to January 26, 2023. If there is a reasonable way to
estimate the total dollar amount in a timely manner, we would also like
that. This request is similar to FOIA request 22-03203-F, and is a
result of discovering that the University of Arkansas System has been in
negotiations to acquire University of Phoenix through a nonprofit
organization. (Date Range for Record Search: From 02/20/2016 To
01/26/2023)
The failure of University of Phoenix (UoPX) is more than a dark moment in higher education history. It should act as a lesson learned in the higher ed business. Executives at 2U, Guild Education, Coursera, Liberty University, Purdue University Global, University of Arizona Global, Chegg, Academic Partnerships, Pearson PLC, Navient, Maximus and other for-profit and non-profit entities must take heed of the mistakes and the hubris of Phoenix, the wisdom of its cofounder John D. Murphy, and the silencing of important worker voices.
For several decades of the 20th century, hundreds of University of Phoenix campuses dotted the American landscape, conveniently located in cities and growing suburbs, off major highways. Founded in 1973, America's largest university became a for-profit darling of Wall Street in the 1980s and 1990s, and the provider of career education for mid-level managers in corporate America and public service. A Phoenix degree was the ticket to promotions and salary increases.
Phoenix's stock rose for many reasons. It was a leader in educational innovation. It was convenient and affordable for upwardly social mobile workers. Its profits were large, and its labor costs were relatively low because UoPX hired business leaders and experts in the field, not tenured scholars, to teach part-time.
But something went horribly wrong along the way.
In the 2010s, University faced government and media scrutiny for its questionable business practices, its declining graduation rates, and its part in creating billions in student loan debt. And when workers voiced their concerns, they were silenced in a variety of ways, from threats and intimidation to firings.
This enrollment collapse has now lasted a dozen years and counting.
Today, as a miniscule portion of Apollo Global Management's portfolio, UoPX's enrollment numbers are less than 100,000--and few of its physical campuses remain open during the Covid pandemic. It's not known how many campuses, if any, are financially viable.
University of Phoenix enrollment, 2009-2016 (Source: US Department of Education)
There are a several reasons why University of Phoenix is just a shadow of what it was. Businesspeople and lobbyists blame government regulation and oversight; others blame the relentless pursuit of quarterly profits and corrupt Apollo Group CEOs, including Todd Nelson.
Having talked to co-founder John D. Murphy and read his book Mission Forsaken, what I found out was that University of Phoenix began failing three decades earlier, during the Ronald Reagan era, when US companies chose to invest less in their workforces. When this post-Fordist shift happened, US companies reduced benefits for workers, and divested in the education and training of mid-level executives.
US Student Loan Debt by Institution (Source: Brookings, Looney and Yannelis, 2015)
In 2017, Apollo Group sold the company to Apollo Global Management, an investment behemoth, along with Vistria Group and the Najafi Companies. As part of its holdings, the school was a tiny portion of its portfolio. Barak Obama's close friend, Anthony Miller, was paid to be Board president.
In January 2022, as a sign of its continued unraveling, Apollo Education appointed George Burnett, a former executive of three failed or predatory companies, including Alta College and Academic Partnerships, to be Phoenix's newest President.
UoPX's problems are a symptom of an economic system that despite the hype cares little about workers: a system that today looks at labor costs as something to be reduced--rather than an investment. With few exceptions, America's most powerful corporations: Amazon, Walmart, Target, Yum Brands, McDonalds--rely on low-wage labor and automation to make a huge profit. Companies in medicine, finance, and tech have smaller labor numbers--and while work may be lucrative at the moment, it's becoming more precarious.
*In the early 2010s, Apollo Group, Phoenix's former parent company, spent between $376 million and $655 million a year on ads and marketing.
The Higher Education Inquirer has posted a number of articles
about student loan debt. In 2023, the
student loan mess has reached epic proportions. Not only has the US Federal Student Aid debt portfolio reached more than $1.6 Trillion,
we learned that $674 Billion was estimated to be unrecoverable.
In California, the US District Court in Sweet v Cardona agreed
to a $6 Billion settlement between student debtors and the US Department of
Education.
In Texas, a group representing for-profit colleges has sued
the US Department of Education for their actions in settling Borrower Defense claims.
And across the US, about 40 million student debtors and
their families are awaiting a decision from the US Supreme Court—a decision
that will not likely favor the debtors.
Borrower Defense to Repayment claims are claims by student loan debtors that
their school misled them or engaged in other misconduct in violation of certain
state laws.The Department of Education may
discharge all or some of the student loan debt and hold the school and its
owners responsible.
As of January 2023, there are more than three quarters of a million Borrower
Defense claims against schools. And each
month, about 16,000 new claims are added. Evidence from the Sweet v Cardona case revealed that only about 35 workers were responsible for processing hundreds of thousands of claims. Those claims have been disproportionately made
against a number of for-profit colleges and formerly for-profit colleges, what
we call “subprime colleges.”
Some of these subprime schools have closed (Everest College, ITT Tech, and Westwood College for
example), some remain in business as for-profit colleges (like University of
Phoenix and Colorado Tech), some have changed names and become covert for-profit colleges or robocolleges (like
Purdue University Global, University of Arizona Global Campus, and the Art
Institutes), and some schools act act like subprime colleges regardless of tax status. This includes low-return on investment programs at several US robocolleges and overly expensive graduate programs offered by 2U, an online program manager for elite colleges.
Named plaintiffs Theresa Sweet (L) and Alicia Davis (R) outside the federal district
court in San Francisco on November 6, 2022, three days before the final approval hearing in Sweet v
Cardona (Image credit: Ashley Pizzuti)
Transparency and Accountability
The US Department of Education keeps an accounting of Borrower Defense claims, but only publishes the aggregate numbers, not institutional numbers. Those institutional numbers do make a difference in promoting transparency and accountability for the largest bad actors. So why does the Department of Education not publish those institutional numbers?
The National Student Legal Defense Network submitted a FOIA (22-01683F) to the US Department of Education (ED) in January 2022 asking just for that information. And what HEI has discovered is that just a small number of schools garnered the lion's share of the Borrower Defense claims. To get a digital copy of that information, please email us for a free download.
Thanks to Alan Collinge and Student Loan Justice for this information on government contractors for the US Department of Education's Student Loan Portfolio.
[Editor's Note: The public comment period ended February 10, 2023.]
The US Department of Education is accepting public comments as a Request for Information (RFI) about "Public Transparency for Low-Financial-Value Postsecondary Programs." The announcement is available at the US Federal Register.
As with most US government rules and policies, industry insiders have great influence in these decisions--and concerned citizens are often shut out of the process. When consumers do have a chance to speak, they may not even know of those opportunities. That's why the Higher Education Inquirer is asking student loan debtors to contribute to this RFI while they can.
Tell DC policymakers and technocrats about your unique struggles (and your family's struggles) tied to student debt--and what could be done to better inform consumers like you.
There you can find public comments that have already been made. As of February 15, only 129 comments were posted.
According to the announcement:
"a misalignment of prices charged to financial benefits received may cause particularly acute harm for student loan borrowers who may struggle to repay their debts after discovering too late that their postsecondary programs did not adequately prepare them for the workforce. Taxpayers also shoulder the costs when a substantial number and share of borrowers are unable to successfully repay their loans. The number of borrowers facing challenges related to the repayment of their student loans is significant."
The Request for Information continues...
"Programs that result in students taking on excessive amounts of debt can make it challenging for students to reach significant life milestones like purchasing a home, starting a family, or saving enough for retirement, ultimately undermining their ability to climb the economic mobility ladder. Especially for borrowers who attended graduate programs, debt-to-income ratios often rise well above sustainable levels. IDR (Income-Driven Repayment) plans also cannot fully protect borrowers from the consequences of low financial-value programs. For instance, IDR plans cannot give students back the time they invested in such programs. For many programs, the cost of students' time may be at least as significant as direct program costs such as tuition, fees, and supplies. Loans will also still show up on borrowers' credit reports, including any periods of delinquency or default prior to enrollment in IDR."
"The Biden-Harris Administration is committed to improving accountability for institutions of higher education. One component of that work is to increase transparency and public accountability by drawing attention to the postsecondary programs that are most likely to leave students with unaffordable loans and provide the lowest financial returns for students and taxpayers."
CECU, an group representing for-profit colleges, has an organized effort to protect its interests.
Meanwhile, Robert Kelchen has provided an EXCEL spreadsheet that provides many answers. The dataset covers 45,971 programs at 5,033 institutions with data on both student debt and earnings for those same cohorts. We found more than 12,200 programs where debt exceeds income. And more than 7200 programs resulted in median incomes of less than $25,000 a year with debt greater than $10,000.
While some of these high-debt programs in medicine and law may eventually be profitable, many more paint a picture of struggle with a lifetime of debt peonage. Cosmetology schools had a large number of low-income programs. But the fine arts, humanities, social sciences, and education also produced low-value programs in terms of debt to income ratio.
Some of subprime schools HEI has been investigating (Purdue University Global, University of Arizona Global, The Art Institutes) had a number of low-value majors. But elite and brand name schools like Duke, Drexel, Emory, Syracuse, Baylor, DePaul, New School, and University of Rochester even have high debt and low-income programs.
What happens now with the US Department of Education now that Elon Musk claims that it no longer exists? It's hard to know yet, and even more difficult after removing career government workers that we have known for years.
We are saddened to hear of contacts we know who have been fired: hard working and capable people, in an agency that has been chronically understaffed and politicized.
We also worry for the hundreds of thousands of student loan debtors who have borrower defense to repayment claims against schools that systematically defrauded them--and have not yet received justice.
And what about all those FAFSA (financial aid) forms for students starting and continuing their schooling? How will they be processed in a timely manner?
The College Meltdown continues in 2020. This phenomenon is deeper than the coronavirus, the temporary closing of campuses across the US, and the cancellation of NCAA basketball's March Madness. What we are seeing in the news should be a smaller entry in the History of American Higher Education compared to larger trends and social problems that preceded the pandemic.
College and university enrollment has been declining slowly but constantly since 2011, with for-profit colleges and community colleges taking the largest hits. And it follows larger demographic trends which include a half century of increasing inequality, including "savage inequalities" in the K-12 pipeline, crushing student loan debt, decreasing social mobility and the underemployment of college graduates, smaller families, and the hollowing out of America.
There are many parts to the current Coronavirus crisis and its effects on US higher education. But they all boil down to the Trump mantra (defund, deregulate, and privatize) and the opportunity for the elites to capitalize from the crisis, as they did during and after the Great Recession.
[Image below from Wikipedia. Higher education in the US has increasingly relied on for-profit mechanisms for growth and revenues. This includes privatized housing and services and for-profit Online Program Managers (OPMs).]
Higher education is a small but significant part of the US economy, which includes much larger sectors like Health Care and Finance. While the working class will not get bailed out, these sectors likely will, with the sudden crisis used as a rationalization. The crisis of crushing student loan debt and the much larger problems related to 50 years of growing inequality may be more disruptive in the long run, but these matters continue to be ignored.
Whether the next President is Donald Trump or Joe Biden, things could get worse for working families, unless there is mass resistance--right now I don't see that happening. For the moment, many young people are responding by living with family, not going to college, and delaying child bearing. Those who do get an education are also making economic sacrifices. Some, for example are selling their bodies as Sugar Babies to get through school.
Many state economies also look bleak in the near future. Not enough in revenues and increasing Medicaid costs make investments in education difficult to do without increasing taxes or state-level debt. And it's not likely that the wealthy will be willing to pay their fair share, unless they feel economically threatened. If that happens, rich companies and rich people can just move out of state or out of the country.
Higher Education and the Student Loan Mess
In October 2019, Trump Department of Education official Wayne Johnson resigned, recognizing that student loan debt mess was worse than anyone had imagined. US higher education enrollment is supposed to be countercyclical (improving when the economy drops) , but don't bet on it without government help.
Haven't heard any rumors in months, but it should also be interesting to see if President Trump tries to unload the $1.5T in federal loans to his banking friends using an executive order. McKinsey & Company have been tasked to determine the possibilities of such a maneuver, but there is radio silence on that front.
In the education sector, I'm watching student loan servicers and private lenders Sallie Mae (SLM), Navient (NAVI), and Nelnet (NNI) closely. Student Loan Asset-Backed Securities (also known as SLABS) are also worthy of scrutiny given the low rates of student loan repayment.
History can be many things. It can be both informative and purposely deceptive. And from time to time, historical events need to be revisited if we seek the truth. We also find critical historical analysis essential when we think about US higher education and student loan debt from a People's perspective.
From 1965 to 2010, the federal government was a backstop for private student loans, Guaranteed Student Loans, also known as the FFEL loans. Annual volume of private loans skyrocketed, from $5B in 2001 to over $20B in 2008, when 14 percent of all undergraduates had one. A secondary market for private student loan debt (student loan asset-backed securities) also began to flourish. An industry group, America's Student Loan Providers (ASLP), provided political cover for private lenders.
In 2007, President George W. Bush signed the College Cost Reduction and Access Act of 2007 (HR 2669) which cut subsidies to lenders and increasing grants to students. But this did little to contain the growing mountain of student loan debt. A mountain of unrecoverable debt that was crushing millions of consumers as the US was facing an enormous economic crisis, the Great Recession.
In rereading The Student Loan Mess, we also discovered that these private entities had not only made questionable loans, some private lenders had also bribed university officials to become preferred lenders. How commonplace this student loan grift was has not been adequately explored.
As part of Health Care and Education Reconciliation Act of 2010, President Obama's takeover of the Guaranteed Student Loan program in 2010, did get attention. Ending the Guaranteed Student Loan program was supposed to save the US government $66B over an 11-year period. This rosy projection never materialized. The FFEL loans acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program are now part of the Direct Loan portfolio. The U.S. Department of Education (ED) acquired an additional $20.4 billion in face amount of FFEL loans from lenders during the transition from the FFEL program to the Direct Loan program.
The FFEL loans that were not acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program remained with the original private lenders. These loans continue to be serviced by the private lenders that issued them.
For-profit colleges, the engine for much of this bad debt, did get scrutiny, and from 2010 to 2023, their presence was reduced. But overpriced education and edugrift continued in many forms. And after a short respite from 2020 to 2024, the mountain of bad student loan debt continues to grow.
When
borrowers default on their federal student loans, the U.S. Department
of Education (“Department of Education”) can collect the outstanding
balance through forced collections, including the offset of tax refunds
and Social Security benefits and the garnishment of wages. At the
beginning of the COVID-19 pandemic, the Department of Education paused
collections on defaulted federal student loans.1
This year, collections are set to resume and almost 6 million student
loan borrowers with loans in default will again be subject to the
Department of Education’s forced collection of their tax refunds, wages,
and Social Security benefits.2
Among the borrowers who are likely to experience forced collections are
an estimated 452,000 borrowers ages 62 and older with defaulted loans
who are likely receiving Social Security benefits.3
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of Social Security benefits.4
It also describes how forced collections can push older borrowers into
poverty, undermining the purpose of the Social Security program.5
Key findings
The
number of Social Security beneficiaries experiencing forced collection
grew by more than 3,000 percent in fewer than 20 years; the count is
likely to grow as the age of student loan borrowers trends older.
Between 2001 and 2019, the number of Social Security beneficiaries
experiencing reduced benefits due to forced collection increased from
approximately 6,200 to 192,300. This exponential growth is likely driven
by older borrowers who make up an increasingly large share of the
federal student loan portfolio. The number of student loan borrowers
ages 62 and older increased by 59 percent from 1.7 million in 2017 to
2.7 million in 2023, compared to a 1 percent decline among borrowers
under the age of 62.
The total amount
of Social Security benefits the Department of Education collected
between 2001 and 2019 through the offset program increased from $16.2
million to $429.7 million. Despite the exponential increase in
collections from Social Security, the majority of money the Department
of Education has collected has been applied to interest and fees and has
not affected borrowers’ principal amount owed. Furthermore, between
2016 and 2019, the Department of the Treasury’s fees alone accounted for
nearly 10 percent of the average borrower’s lost Social Security
benefits.
More than one in three
Social Security recipients with student loans are reliant on Social
Security payments, meaning forced collections could significantly
imperil their financial well-being. Approximately 37 percent of the
1.3 million Social Security beneficiaries with student loans rely on
modest payments, an average monthly benefit of $1,523, for 90 percent of
their income. This population is particularly vulnerable to reduction
in their benefits especially if benefits are offset year-round. In 2019,
the average annual amount collected from individual beneficiaries was
$2,232 ($186 per month).
The physical well-being of half of Social Security beneficiaries with student loans in default may be at risk.
Half of Social Security beneficiaries with student loans in default and
collections skipped a doctor’s visit or did not obtain prescription
medication due to cost.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
Currently, only $750 per month of Social Security income—an amount that
is $400 below the monthly poverty threshold for an individual and has
not been adjusted for inflation since 1996—is protected from forced
collections by statute. Even if the minimum protected income was
adjusted for inflation, beneficiaries would likely still experience
hardship, such as food insecurity and problems paying utility bills. A
higher threshold could protect borrowers against hardship more
effectively. The CFPB found that for 87 percent of student loan
borrowers who receive Social Security, their benefit amount is below 225
percent of the federal poverty level (FPL), an income level at which
people are as likely to experience material hardship as those with
incomes below the federal poverty level.
Large
shares of Social Security beneficiaries affected by forced collections
may be eligible for relief or outright loan cancellation, yet they are
unable to access these benefits, possibly due to insufficient
automation or borrowers’ cognitive and physical decline. As many as
eight in ten Social Security beneficiaries with loans in default may be
eligible to suspend or reduce forced collections due to financial
hardship. Moreover, one in five Social Security beneficiaries may be
eligible for discharge of their loans due to a disability. Yet these
individuals are not accessing such relief because the Department of
Education’s data matching process insufficiently identifies those who
may be eligible.
Taken together,
these findings suggest that the Department of Education’s forced
collections of Social Security benefits increasingly interfere with
Social Security’s longstanding purpose of protecting its beneficiaries
from poverty and financial instability.
Introduction
When
borrowers default on their federal student loans, the Department of
Education can collect the outstanding balance through forced
collections, including the offset of tax refunds and Social Security
benefits, and the garnishment of wages. At the beginning of the COVID-19
pandemic, the Department of Education paused collections on defaulted
federal student loans. This year, collections are set to resume and
almost 6 million student loan borrowers with loans in default will again
be subject to the Department of Education’s forced collection of their
tax refunds, wages, and Social Security benefits.6
Among
the borrowers who are likely to experience the Department of
Education’s renewed forced collections are an estimated 452,000
borrowers with defaulted loans who are ages 62 and older and who are
likely receiving Social Security benefits.7
Congress created the Social Security program in 1935 to provide a basic
level of income that protects insured workers and their families from
poverty due to situations including old age, widowhood, or disability.8
The Social Security Administration calls the program “one of the most
successful anti-poverty programs in our nation's history.”9
In 2022, Social Security lifted over 29 million Americans from poverty,
including retirees, disabled adults, and their spouses and dependents.10
Congress has recognized the importance of securing the value of Social
Security benefits and on several occasions has intervened to protect
them.11
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of their Social Security
benefits.12
It also describes how the purpose of Social Security is being
increasingly undermined by the limited and deficient options the
Department of Education has to protect Social Security beneficiaries
from poverty and hardship.
The forced collection of Social Security benefits has increased exponentially.
Federal
student loans enter default after 270 days of missed payments and
transfer to the Department of Education’s default collections program
after 360 days. Borrowers with a loan in default face several
consequences: (1) their credit is negatively affected; (2) they lose
eligibility to receive federal student aid while their loans are in
default; (3) they are unable to change repayment plans and request
deferment and forbearance;13 and (4) they face forced collections of tax refunds, Social Security benefits, and wages among other payments.14
To conduct its forced collections of federal payments like tax refunds
and Social Security benefits, the Department of Education relies on a
collection service run by the U.S. Department of the Treasury called the
Treasury Offset Program.15
Between
2001 and 2019, the number of student loan borrowers facing forced
collection of their Social Security benefits increased from at least
6,200 to 192,300.16
That is a more than 3,000 percent increase in fewer than 20 years. By
comparison, the number of borrowers facing forced collections of their
tax refunds increased by about 90 percent from 1.17 million to 2.22
million during the same period.17
This exponential growth of Social Security offsets between 2001 and 2019 is likely driven by multiple factors including:
Older
borrowers accounted for an increasingly large share of the federal
student loan portfolio due to increasing average age of enrollment and
length of time in repayment. Data from the Department of Education
(which is only available since 2017), show that the number of student
loan borrowers ages 62 and older, increased 24 percent from 1.7 million
in 2017 to 2.1 million in 2019, compared to less than 1 percent among
borrowers under the age of 62.18
A larger number of borrowers, especially older borrowers, had loans in default.
Data from the Department of Education show that the number of student
loan borrowers with a defaulted loan increased by 230 percent from 3.8
million in 2006 to 8.8 million in 2019.19 Compounding these trends is the fact that older borrowers are twice as likely to have a loan in default than younger borrowers.20
Due
to these factors, the total amount of Social Security benefits the
Department of Education collected between 2001 and 2019 through the
offset program increased annually from $16.2 million to $429.7 million
(when adjusted for inflation).21
This increase occurred even though the average monthly amount the
Department of Education collected from individual beneficiaries was the
same for most years, at approximately $180 per month.22
Figure 1: Number of Social Security beneficiaries and total amount collected for student loans (2001-2019)
Source: CFPB analysis of public data from U.S. Treasury’s Fiscal Data portal. Amounts are presented in 2024 dollars.
While the total collected from
Social Security benefits has increased exponentially, the majority of
money the Department of Education collected has not been applied to
borrowers’ principal amount owed. Specifically, nearly three-quarters of
the monies the Department of Education collects through offsets is
applied to interest and fees, and not towards paying down principal
balances.23
Between 2016 and 2019, the U.S. Department of the Treasury charged the
Department of Education between $13.12 and $15.00 per Social Security
offset, or approximately between $157.44 and $180 for 12 months of
Social Security offsets per beneficiary with defaulted federal student
loans.24 As a matter of practice, the Department of Education often passes these fees on directly to borrowers.25
Furthermore, these fees accounted for nearly 10 percent of the average
monthly borrower’s lost Social Security benefits which was $183 during
this time.26
Interest and fees not only reduce beneficiaries’ monthly benefits, but
also prolong the period that beneficiaries are likely subject to forced
collections.
Forced collections are compromising Social Security beneficiaries’ financial well-being.
Forced
collection of Social Security benefits affects the financial well-being
of the most vulnerable borrowers and can exacerbate any financial and
health challenges they may already be experiencing. The CFPB’s analysis
of the Survey of Income and Program Participation (SIPP) pooled data for
2018 to 2021 finds that Social Security beneficiaries with student
loans receive an average monthly benefit of $1,524.27
The analysis also indicates that approximately 480,000 (37 percent) of
the 1.3 million beneficiaries with student loans rely on these modest
payments for 90 percent or more of their income,28
thereby making them particularly vulnerable to reduction in their
benefits especially if benefits are offset year-round. In 2019, the
average annual amount collected from individual beneficiaries was $2,232
($186 per month).29
A
recent survey from The Pew Charitable Trusts found that more than nine
in ten borrowers who reported experiencing wage garnishment or Social
Security payment offsets said that these penalties caused them financial
hardship.30
Consequently, for many, their ability to meet their basic needs,
including access to healthcare, became more difficult. According to our
analysis of the Federal Reserve’s Survey of Household Economic and
Decision-making (SHED), half of Social Security beneficiaries with
defaulted student loans skipped a doctor’s visit and/or did not obtain
prescription medication due to cost.31
Moreover, 36 percent of Social Security beneficiaries with loans in
delinquency or in collections report fair or poor health. Over half of
them have medical debt.32
Figure 2: Selected financial experiences and hardships among subgroups of loan borrowers
Source: CFPB analysis of the Federal Reserve Board Survey of Household Economic and Decision-making (2019-2023).
Social Security recipients
subject to forced collection may not be able to access key public
benefits that could help them mitigate the loss of income. This is
because Social Security beneficiaries must list the unreduced amount of
their benefits prior to collections when applying for other means-tested
benefits programs such as Social Security Insurance (SSI), Supplemental
Nutrition Assistance Program (SNAP), and the Medicare Savings Programs.33
Consequently, beneficiaries subject to forced collections must report
an inflated income relative to what they are actually receiving. As a
result, these beneficiaries may be denied public benefits that provide
food, medical care, prescription drugs, and assistance with paying for
other daily living costs.34
Consumers’
complaints submitted to the CFPB describe the hardship caused by forced
collections on borrowers reliant on Social Security benefits to pay for
essential expenses.35
Consumers often explain their difficulty paying for such expenses as
rent and medical bills. In one complaint, a consumer noted that they
were having difficulty paying their rent since their Social Security
benefit usually went to paying that expense.36
In another complaint, a caregiver described that the money was being
withheld from their mother’s Social Security, which was the only source
of income used to pay for their mother’s care at an assisted living
facility.37
As forced collections threaten the housing security and health of
Social Security beneficiaries, they also create a financial burden on
non-borrowers who help address these hardships, including family members
and caregivers.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
The
Debt Collection Improvement Act set a minimum floor of income below
which the federal government cannot offset Social Security benefits and
subsequent Treasury regulations established a cap on the percentage of
income above that floor.38
Specifically, these statutory guardrails limit collections to 15
percent of Social Security benefits above $750. The minimum threshold
was established in 1996 and has not been updated since. As a result, the
amount protected by law alone does not adequately protect beneficiaries
from financial hardship and in fact no longer protects them from
falling below the federal poverty level (FPL). In 1996, $750 was nearly
$100 above the monthly poverty threshold for an individual.39
Today that same protection is $400 below the threshold. If the
protected amount of $750 per month ($9,000 per year) set in 1996 was
adjusted for inflation, in 2024 dollars, it would total $1,450 per month
($17,400 per year).40
Figure
3: Comparison of monthly FPL threshold with the current protected
amount established in 1996 and the amount that would be protected with
inflation adjustment
Source: Calculations by the CFPB. Notes: Inflation adjustments based on the consumer price index (CPI).
Even if the minimum protected
income of $750 is adjusted for inflation, beneficiaries will likely
still experience hardship as a result of their reduced benefits.
Consumers with incomes above the poverty line also commonly experience
material hardship.41 This suggests that a threshold that is higher than the poverty level will more effectively protect against hardship.42
Indeed, in determining an income threshold for $0 payments under the
SAVE plan, the Department of Education researchers used material
hardship (defined as being unable to pay utility bills and reporting
food insecurity) as their primary metric, and found similar levels of
material hardship among those with incomes below the poverty line and
those with incomes up to 225 percent of the FPL.43
Similarly, the CFPB’s analysis of a pooled sample of SIPP respondents
finds the same levels of material hardship for Social Security
beneficiaries with student loans with incomes below 100 percent of the
FPL and those with incomes up to 225 percent of the FPL.44
The CFPB found that for 87 percent of student loan borrowers who
receive Social Security, their benefit amount is below 225 percent of
the FPL.45
Accordingly, all of those borrowers would be removed from forced
collections if the Department of Education applied the same income
metrics it established under the SAVE program to an automatic hardship
exemption program.
Existing options for relief from forced collections fail to reach older borrowers.
Borrowers
with loans in default remain eligible for certain types of loan
cancellation and relief from forced collections. However, our analysis
suggests that these programs may not be reaching many eligible
consumers. When borrowers do not benefit from these programs, their
hardship includes, but is not limited to, unnecessary losses to their
Social Security benefits and negative credit reporting.
Borrowers who become disabled after reaching full retirement age may miss out on Total and Permanent Disability
The
Total and Permanent Disability (TPD) discharge program cancels federal
student loans and effectively stops all forced collections for disabled
borrowers who meet certain requirements. After recent revisions to the
program, this form of cancelation has become common for those borrowers
with Social Security who became disabled prior to full retirement age.46 In 2016, a GAO study documented the significant barriers to TPD that Social Security beneficiaries faced.47
To address GAO’s concerns, the Department of Education in 2021 took a
series of mitigating actions, including entering into a data-matching
agreement with the Social Security Administration (SSA) to automate the
TPD eligibility determination and discharge process.48
This process was expanded further with new final rules being
implemented July 1, 2023 that expanded the categories of borrowers
eligible for automatic TPD cancellation.49 In total, these changes successfully resulted in loan cancelations for approximately 570,000 borrowers.50
However,
the automation and other regulatory changes did not significantly
change the application process for consumers who become disabled after
they reach full retirement age or who have already claimed the Social
Security retirement benefits. For these beneficiaries, because they are
already receiving retirement benefits, SSA does not need to determine
disability status. Likewise, SSA does not track disability status for
those individuals who become disabled after they start collecting their
Social Security retirement benefits.51
Consequently,
SSA does not transfer information on disability to the Department of
Education once the beneficiary begins collecting Social Security
retirement.52
These individuals therefore will not automatically get a TPD discharge
of their student loans, and they must be aware and physically and
mentally able to proactively apply for the discharge.53
The
CFPB’s analysis of the Census survey data suggests that the population
that is excluded from the TPD automation process could be substantial.
More than one in five (22 percent) Social Security beneficiaries with
student loans are receiving retirement benefits and report a disability
such as a limitation with vision, hearing, mobility, or cognition.54
People with dementia and other cognitive disabilities are among those
with the greatest risk of being excluded, since they are more likely to
be diagnosed after the age 70, which is the maximum age for claiming
retirement benefits.55
These
limitations may also help explain why older borrowers are less likely
to rehabilitate their defaulted student loans. Specifically, 11 percent
of student loan borrowers ages 50 to 59 facing forced collections
successfully rehabilitated their loans,56 while only five percent of borrowers over the age of 75 do so.57
Figure
4: Number of student loan borrowers ages 50 and older in forced
collection, borrowers who signed a rehabilitation agreement, and
borrowers who successfully rehabilitated a loan by selected age groups
Age Group
Number of Borrowers in Offset
Number of Borrowers Who Signed a Rehabilitation Agreement
Percent of Borrowers Who Signed a Rehabilitation Agreement
Number of Borrowers Successfully Rehabilitated
Percent of Borrowers who Successfully Rehabilitated
50 to 59
265,200
50,800
14%
38,400
11%
60 to 74
184,900
24,100
11%
18,500
8%
75 and older
15,800
1,000
6%
800
5%
Source: CFPB analysis of data provided by the Department of Education.
Shifting demographics of
student loan borrowers suggest that the current automation process may
become less effective to protect Social Security benefits from forced
collections as more and more older adults have student loan debt. The
fastest growing segment of student loan borrowers are adults ages 62 and
older. These individuals are generally eligible for retirement
benefits, not disability benefits, because they cannot receive both
classifications at the same time. Data from the Department of Education
reflect that the number of student loan borrowers ages 62 and older
increased by 59 percent from 1.7 million in 2017 to 2.7 million in 2023.
In comparison, the number of borrowers under the age of 62 remained
unchanged at 43 million in both years.58
Furthermore, additional data provided to the CFPB by the Department of
Education show that nearly 90,000 borrowers ages 81 and older hold an
average amount of $29,000 in federal student loan debt, a substantial
amount despite facing an estimated average life expectancy of less than
nine years.59
Existing exceptions to forced collections fail to protect many Social Security beneficiaries
In
addition to TPD discharge, the Department of Education offers reduction
or suspension of Social Security offset where borrowers demonstrate
financial hardship.60
To show hardship, borrowers must provide documentation of their income
and expenses, which the Department of Education then uses to make its
determination.61
Unlike the Debt Collection Improvement Act’s minimum protections, the
eligibility for hardship is based on a comparison of an individual’s
documented income and qualified expenses. If the borrower has eligible
monthly expenses that exceed or match their income, the Department of
Education then grants a financial hardship exemption.62
The
CFPB’s analysis suggests that the vast majority of Social Security
beneficiaries with student loans would qualify for a hardship
protection. According to CFPB’s analysis of the Federal Reserve Board’s
SHED, eight in ten (82 percent) of Social Security beneficiaries with
student loans in default report that their expenses equal or exceed
their income.63
Accordingly, these individuals would likely qualify for a full
suspension of forced collections. Yet the GAO found that in 2015 (when
the last data was available) less than ten percent of Social Security
beneficiaries with forced collections applied for a hardship exemption
or reduction of their offset.64
A possible reason for the low uptake rate is that many beneficiaries or
their caregivers never learn about the hardship exemption or the
possibility of a reduction in the offset amount.65
For those that do apply, only a fraction get relief. The GAO study
found that at the time of their initial offset, only about 20 percent of
Social Security beneficiaries ages 50 and older with forced collections
were approved for a financial hardship exemption or a reduction of the
offset amount if they applied.66
Conclusion
As
hundreds of thousands of student loan borrowers with loans in default
face the resumption of forced collection of their Social Security
benefits, this spotlight shows that the forced collection of Social
Security benefits causes significant hardship among affected borrowers.
The spotlight also shows that the basic income protections aimed at
preventing poverty and hardship among affected borrowers have become
increasingly ineffective over time. While the Department of Education
has made some improvements to expand access to relief options,
especially for those who initially receive Social Security due to a
disability, these improvements are insufficient to protect older adults
from the forced collection of their Social Security benefits.
Taken
together, these findings suggest that forced collections of Social
Security benefits increasingly interfere with Social Security’s
longstanding purpose of protecting its beneficiaries from poverty and
financial instability. These findings also suggest that alternative
approaches are needed to address the harm that forced collections cause
on beneficiaries and to compensate for the declining effectiveness of
existing remedies. One potential solution may be found in the Debt
Collection Improvement Act, which provides that when forced collections
“interfere substantially with or defeat the purposes of the payment
certifying agency’s program” the head of an agency may request from the
Secretary of the Treasury an exemption from forced collections.67
Given the data findings above, such a request for relief from the
Commissioner of the Social Security Administration on behalf of Social
Security beneficiaries who have defaulted student loans could be
justified. Unless the toll of forced collections on Social Security
beneficiaries is considered alongside the program’s stated goals, the
number of older adults facing these challenges is only set to grow.
Data and Methodology
To
develop this report, the CFPB relied primarily upon original analysis
of public-use data from the U.S. Census Bureau Survey of Income and
Program Participation (SIPP), the Federal Reserve Board Board’s Survey
of Household Economics and Decision-making (SHED), U.S. Department of
the Treasury, Fiscal Data portal, consumer complaints received by the
Bureau, and administrative data on borrowers in default provided by the
Department of Education. The report also leverages data and findings
from other reports, studies, and sources, and cites to these sources
accordingly. Readers should note that estimates drawn from survey data
are subject to measurement error resulting, among other things, from
reporting biases and question wording.
Survey of Income and Program Participation
The
Survey of Income and Program Participation (SIPP) is a nationally
representative survey of U.S. households conducted by the U.S. Census
Bureau. The SIPP collects data from about 20,000 households (40,000
people) per wave. The survey captures a wide range of characteristics
and information about these households and their members. The CFPB
relied on a pooled sample of responses from 2018, 2019, 2020, and 2021
waves for a total number of 17,607 responses from student loan borrowers
across all waves, including 920 respondents with student loans
receiving Social Security benefits. The CFPB’s analysis relied on the
public use data. To capture student loan debt, the survey asked to all
respondents (variable EOEDDEBT): Owed any money for student loans or
educational expenses in own name only during the reference period. To
capture receipt of Social Security benefits, the survey asked to all
respondents (variable ESSSANY): “Did ... receive Social Security
benefits for himself/herself at any time during the reference period?”
To capture amount of Social Security benefits, the survey asked to all
respondents (variable TSSSAMT): “How much did ... receive in Social
Security benefit payment in this month (1-12), prior to any deductions
for Medicare premiums?”
The
Federal Reserve Board’s Survey of Household Economics and
Decision-making (SHED) is an annual web-based survey of households. The
survey captures information about respondents’ financial situations. The
CFPB relied on a pooled sample of responses from 2019 through 2023
waves for a total number of 1,376 responses from student loan borrowers
in collection across all waves. The CFPB analysis relied on the public
use data. To capture default and collection, the survey asked all
respondents with student loans (variable SL6): “Are you behind on
payments or in collections for one or more of the student loans from
your own education?” To capture receipt of Social Security benefits, the
survey asked to all respondents (variable I0_c): “In the past 12
months, did you (and/or your spouse or partner) receive any income from
the following sources: Social Security (including old age and DI)?”
