Social Security Benefits Withheld to Pay Past Student Loans

Imagine attending school over 10 years ago, having outstanding student loans, eventually being deemed disabled or retiring, and receiving notification […]

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Imagine attending school over 10 years ago, having outstanding student loans, eventually being deemed disabled or retiring, and receiving notification that your student loan payment would be deducted from your $784 Social Security check. Would you be surprised? James Lockhart was. He requested the help of legal aid. As they began to look into the issue, they realized the case may be much more complex than it originally seemed. In fact, the case recently reached the United States Supreme Court.

James Lockhart became unemployed in 1981. He attended college from 1984 through 1989 using student loans issued by various lenders. The loans were insured by the federal government in the event Mr. Lockhart failed to repay them. Although he was able to secure employment during 1987, it only lasted for a few months. After a few years, the lenders of the loans made claims under their federal insurance coverage and the loans became the responsibility of Department of Education. In 2002, the Department of Education, working in conjunction with the Social Security Administration, began withholding a portion of his Social Security Disability Income (SSDI) check as repayment for the past due student loans.

At the time Lockhart brought this case to court, he was 65 years old, receiving a monthly Social Security check in the amount of $874, receiving monthly food stamps in the amount of $10, living in public housing, paying for significant medical services, and purchasing several prescription medications. His request for an administrative review, which possibly included a hardship waiver because of his health status and limited income, was denied.

This case was particularly interesting because it involved a complex interaction of three different laws and later amendments passed several years apart: the Social Security Act of 1935, the Higher Education Act of 1965, and the Debt Collection Act of 1982.

Originally, Social Security benefits could not be legally withheld or diverted to repay debts; they were legally protected according to the Social Security Act. During 1983, the authors of the Social Security Act amendment attempted to further protect Social Security benefits from being diverted for other purposes. Basically, the law said that Social Security benefits could not be diverted by future laws unless those future laws specifically said, in very clear terms, that Social Security benefits could now be withheld under the new law even though the Social Security Act said those benefits shouldn’t be diverted. In other words, legislators writing new laws that may divert Social Security benefits would need to play a game of “Simon Says” by writing “Simon says we can now divert Social Security benefits even though we realize that we couldn’t before because of the Social Security Act.” “Simon Says” rules had been used when writing laws in hopes those laws would not be accidentally changed in the future; this was not a tactic used only in the Social Security Act.

Besides the original protection offered by the Social Security Act, the Debt Collection Act said that debts over 10 years old could not be legally collected; any debts over 10 years old were expired. Then, the Higher Education Technical Amendments of 1991 changed the Higher Education Act to allow the collection of certain student loan debt, no matter how old the debt was.

Mr. Lockhart’s student loan happened to be one of those student loans that could be collected no matter how old it was. In relation to this case, Mr. Lockhart and his attorneys pointed to historical legislative records covering the Higher Education Technical Amendments of 1991 that seemed to suggest the primary motivation behind law change was to allow the government to continue withholding tax refunds to pay student loan balances more than 10 years old. Besides, the lawmakers apparently didn’t intend the unlimited collection period to apply to Social Security since the specific “Simon Says” phrase was not used. But, the issue related to Social Security most likely was not raised as Social Security benefits were still protected in 1991 by the Social Security Act.

In 1996, the Debt Collection Act was changed by the Debt Collection Improvement Act to say that certain unpaid debts could be collected from Social Security. This time, the specific “Simon Says” phrase was used. Here again, Mr. Lock-hart and his attorneys pointed to historical legislative records covering the Debt Collection Improvement Act which suggested that legislators were concerned regarding how the provisions would be implemented, especially when applied to individuals relying upon Social Security benefits as their only source of income. Lockhart further suggested that the unlimited collection time provided by the Higher Education Technical Amendments of 1991 did not apply since that law did not specifically use the “Simon Says” phrase; therefore, debts older than 10 years could not be collected by withholding Social Security benefits. Lockhart went on to point out that legislation introduced in 2004, which would have allowed Social Security benefits to be withheld and applied toward debts older than 10 years, was voted against.

In this case, the Supreme Court decided the “Simon Says” phrase was not necessary and the legislation introduced in 2004 was redundant. Over the past decade or so, courts have decided that such “Simon Says” rules simply waste time and money “jumping through hoops” and have told legislators that they must be more careful when writing new laws. Meaning, legislators are responsible for understanding existing laws and how any new laws will impact the old laws. Consequently, if legislators write a new law that contradicts an old law, the court will assume the lawmakers simply intended to rewrite the old law. But, is it realistic for legislators to have knowledge of all existing laws and all potential impacts of their new laws? Perhaps not as individuals, but such expectations may be reasonable considering legislators often rely on the advice of, or usually receive feedback from, research assistants, policy analysts, and lobbyists representing both sides of the issue —at least I believe they should actively seek and consider concerns, comments, and questions from those impacted by new laws.

Perhaps the only unresolved issue for the aging and disability community in relation to students is whether or not the Department of Education’s hardship waiver program requirements are unrealistic – might they be too strict and causing individuals to experience economic hardship and emotional distress? Perhaps the true underlying issue for lawmakers is whether or not they are insuring they have sufficiently considered the impact of laws they are authoring or sponsoring, and if so, have they documented their true intent and potential misapplications within the text of the law.

Unfortunately, this Supreme Court decision could have significant implications for individuals with disabilities who use student loans to return to school as part of their rehabilitation program. In the event an individual’s rehabilitation program does not deliver expected results, or in the event the individual’s health deteriorates and prohibits that person from returning to work, and that person does not have sufficient assets or other income allowing them to repay student loans without jeopardizing the satisfaction of their basic needs, could they be at risk for economic hardship and emotional distress as well? If that risk is possible, will individuals with disabilities shy away from rehabilitation programs incorporating additional education funded by student loans? Could this undermine vocational rehabilitation and retraining programs?

Will subsidized housing programs base rental rates on the full (pre-repayment) monthly disability/retirement payment or will they only consider the actual disability/retirement income received (less the repayment)? If so, federal, state, and local public housing income could also be decreased, in a sense funneled into the student loan program. Perhaps targeted individuals will rely more heavily on other public programs (e.g. financial assistance, food shelves, and heating/utility programs) to offset for their withheld income. Again, those programs which are already alarmingly under funded may experience greater demand, again suffering because of resources “reinvested” in student loans.

Time will tell . . .

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