OLDER AMERICANS

Inability to Repay Student 

Loans May Affect 

Financial Security of a 

Small Percentage of 

Retirees

Statement of Charles A. Jeszeck, Director, Education, 

Workforce, and Income Security

Testimony

Before the Special Committee on 

Aging, U.S. Senate

For Release on Delivery 

Expected at 2:15 p.m. ET

Wednesday, September 10, 2014

GAO-14-866T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-866T, a testimony 

before the Special Committee on Aging, U.S. 

Senate

September 10, 2014

OLDER AMERICANS

Inability to Repay Student Loans May Affect Financial 

Security of a Small Percentage of Retirees

Why GAO Did This Study

Recent studies have indicated that 

many Americans may be approaching 

their retirement years with increasing 

levels of various kinds of debt. Such 

debt can reduce net worth and income, 

thereby diminishing overall retirement 

financial security. Student loan debt 

held by older Americans can be 

especially daunting because unlike 

other types of debt, it generally cannot 

be discharged in bankruptcy. GAO was 

asked to examine the extent of student 

loan debt held by older Americans and 

the implications of default. 

This testimony provides information on: 

(1) the extent to which older Americans

have outstanding student loans and 

how this debt compares to other types 

of debt, and (2) the extent to which 

older Americans have defaulted on 

federal student loans and the possible 

consequences of default. To address 

these issues, GAO obtained and 

analyzed relevant data from the 

Federal Reserve Board’s Survey of 

Consumer Finances as well as data 

from the Department of the Treasury, 

the Social Security Administration, and 

the Department of Education. GAO 

also reviewed key agency documents

and interviewed knowledgeable staff. 

What GAO Recommends

GAO is not making recommendations. 

GAO received technical comments on 

a draft of this testimony from the 

Department of Education, the 

Department of the Treasury, and the 

Federal Reserve System. GAO

incorporated these comments into the 

testimony as appropriate. 

What GAO Found

Comparatively few households headed by older Americans carry student debt

compared to other types of debt, such as for mortgages and credit cards. GAO’s 

analysis of the data from the Survey of Consumer Finances reveals that about 3 

percent of households headed by those aged 65 or older—about 706,000 

households—carry student loan debt. This compares to about 24 percent of 

households headed by those aged 64 or younger—22 million households. 

Compared to student loan debt, those 65 and older are much more likely to carry 

other types of debt. For example, about 29 percent carry home mortgage debt 

and 27 percent carry credit card debt. Still, student debt among older American

households has grown in recent years. The percentage of households headed by 

those aged 65 to 74 having student debt grew from about 1 percent in 2004 to 

about 4 percent in 2010. While those 65 and older account for a small fraction of 

the total amount of outstanding federal student debt, the outstanding federal 

student debt for this age group grew from about $2.8 billion in 2005 to about 

$18.2 billion in 2013. 

Outstanding Federal Student Loan Balances by Age Group, 2005 and 2013

Available data indicate that borrowers 65 and older hold defaulted federal student 

loans at a much higher rate, which can leave some retirees with income below 

the poverty threshold. Although federal student loans can remain unpaid for more 

than a year before the Department of Education takes aggressive action to 

recover the funds, once initiated, the actions can have serious consequences. 

For example, a portion of the borrower’s Social Security disability, retirement, or 

survivor benefits can be claimed to pay off the loan. From 2002 through 2013, 

the number of individuals whose Social Security benefits were offset to pay 

student loan debt increased about five-fold from about 31,000 to 155,000. Among 

those 65 and older, the number of individuals whose benefits were offset grew 

from about 6,000 to about 36,000 over the same period, roughly a 500 percent 

increase. In 1998, additional limits on the amount that monthly benefits can be 

offset were implemented, but since that time the value of the amount protected 

and retained by the borrower has fallen below the poverty threshold. 

View GAO-14-866T. For more information, 

contact Charles A. Jeszeck at (202) 512-7215

or jeszeckc@gao.gov. 
 

Page 1 GAO-14-866T 

Chairman Nelson, Ranking Member Collins, and Members of the 

Committee:

I am pleased to be here today to discuss the financial effect of student 

loan debt on older Americans.1 This statement summarizes the work we 

did at the request of Chairman Nelson and Chairman Harkin, Chair of the 

Senate Committee on Health, Education, Labor, and Pensions. As recent 

studies have shown, debt held by older Americans is increasing and may 

affect financial security in retirement. A 2013 study reported that the 

percentage of Americans 65 or older with some debt increased from 

about 30 percent to about 43 percent from 1998 to 2010.2

Student loan debt can be especially problematic because unlike other 

types of debt, it generally cannot be discharged in bankruptcy

The study also 

found that the median amount of debt increased 56 percent, from about 

$13,600 to $21,200. Further, for those 65 and older, the overall debt 

ratio—total debt as a percentage of total household assets—doubled from 

1998 to 2010, rising from 6.4 percent to 13 percent. Such debt reduces 

net worth and income and can erode retirement security. The effect of 

rising debt can be more profound for those who have accumulated few or 

no financial assets.

3 and can, 

in the event of default on federal student loans, lead to reductions in 

certain federal payments such as Social Security benefits.4

In light of these issues, we were asked to examine both the incidence of 

student loan debt among older American households, and the 

implications of defaulting on student loans for members of this population. 

Specifically, we examined (1) the extent to which older Americans have 

According to 

data compiled by the Federal Reserve Bank of New York, the number of 

Americans 50 and older with student loan debt increased from 3 million in 

2005 to 6.9 million in 2012—an increase of 130 percent.

 

1

In this testimony, we use the phrase “older Americans” to mean those of traditional 

retirement age, 65 and older. As appropriate, we will also consider those approaching 

retirement age which, depending on the data source, may include those at or over the 

ages of 50 or 55.

2

Nadia Karamcheva, Is Household Debt Growing for Older Americans? Urban Institute 

Program on Retirement Policy, Number 33, (January 2013).

3

11 U.S. C. § 523(a)(8).

4

31 U.S.C. § 3716(c)(3)(A)(i)(I).
 

Page 2 GAO-14-866T 

outstanding student loans and how this debt compared to other types of 

debt, and (2) the extent to which older Americans have defaulted on 

federal student loans and the possible consequences of default.

To address these questions, we analyzed a number of nationally 

representative datasets, reviewed relevant literature, examined relevant

federal laws and regulations, studied agency data and documents, and 

interviewed relevant experts. Specifically, for the first question, we 

extracted and analyzed data from the Federal Reserve Board’s Survey of 

Consumer Finances (SCF), a survey conducted once every 3 years that 

gathers various economic and financial data at the household level. We 

also obtained targeted data reflecting individual loans—but not 

borrowers—from the Department of Education’s (Education) National 

Student Loan Data System (NSLDS). Although Education maintains 

borrower-level data, it was only able to provide us with aggregated data 

by loan type during the course of our analyses. To answer the second 

question, we reviewed additional data from the NSLDS, and obtained 

data from the Department of the Treasury (Treasury) on payments 

withheld from Social Security benefits and applied to defaulted federal 

student loans through the Treasury Offset Program. To better understand 

offset for older Americans, we matched the Treasury data with data from 

the Social Security Administration’s Master Beneficiary Record on the 

ages of these borrowers and the types of benefits they receive. In 

addition, we interviewed Education officials and reviewed relevant 

documentation regarding Education’s debt collection policies and 

procedures; however, we did not audit their compliance with statutory 

requirements related to these activities. We assessed the reliability of the 

data sources by reviewing documentation and conducting testing of the 

data and determined that they were sufficiently reliable for purposes of 

this testimony. More details on our scope and methodology are included 

in appendix 1.

We provided a draft of this testimony to the Department of Education, the 

Department of the Treasury, the Social Security Administration, and the 

Federal Reserve System for review and comment. They generally agreed 

with our findings. We received technical comments from each agency 

except the Social Security Administration, which had no comments, and 

as appropriate, we incorporated these technical comments into this 

testimony.

We conducted this performance audit from November 2013 to September 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 
 

Page 3 GAO-14-866T 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

Since passage of the Higher Education Act of 1965,5 a broad array of 

federal student aid programs, including loan programs, have been 

available to help students finance the cost of postsecondary education.6

Currently, several types of federal student loans administered by 

Education make up the largest portion of student loans in the United 

States. Four types of federal student loans are available to borrowers and 

have features that make them attractive for financing higher education. 

For example, borrowers are not required to begin repaying most federal 

student loans until after graduation or when their enrollment status 

significantly changes. Further, interest rates on federal student loans are 

generally lower than other financing alternatives, and the programs offer 

repayment flexibilities if borrowers are unable to meet scheduled 

payments. As outlined in table 1, the four federal loan programs differ in 

that interest rates may or may not be subsidized based on the borrower’s 

financial need, loans may be designed to specifically serve 

undergraduate or graduate and professional students, and loans may 

serve to consolidate and extend the payment term of multiple federal 

student loans.7

 

5

Pub. L. No. 89-329, 79 Stat. 1219 (codified as amended at 20 U.S.C. §§ 1001-1161aa-1 

and 42 U.S.C. §§ 2751-2757b).

6

In addition to loans, the Higher Education Act of 1965 also authorizes various other types 

of federal support for higher education, including grants and scholarships.

7

In addition to the loan programs described in table 1, many older borrowers may be 

carrying Federal Family Education Loans (FFEL). The FFEL program was authorized by 

the Higher Education Act of 1965, but the SAFRA Act terminated the authority to make 

FFEL loans after June 30, 2010 (Pub. L. No. 111-152, §§ 2001 and 2201, 124 Stat. 1029, 

1071 and 1074 (codified at 20 U.S.C. § 1071(b) and (d)) and no additional loans have 

been made.

Background
 

Page 4 GAO-14-866T 

Table 1: Major Types of Federal Student Loans 

Federal loan program Eligibility Aggregate loan limits Interest ratesa

Federal Perkins Loans Undergraduate and graduate 

students who can demonstrate 

financial need

$11,000 for 1st and 2nd year 

undergraduate students

$27,500 for 3rd and 4th year 

undergraduate students

$60,000 for graduate students 

(including undergraduate loans)

5%

William D. Ford Direct 

Stafford Loans

Subsidized loansb

Undergraduate students enrolled at 

least half-time who can 

demonstrate financial need

Unsubsidized loans

Undergraduate and graduate 

students. Same as subsidized 

loans, except financial need is not 

required

Subsidized

$23,000 for undergraduate 

students

$65,000 for graduate students

Total (subsidized and 

unsubsidized)

$31,000 for dependent 

undergraduates

$57,500 for independent 

undergraduates and dependent 

students whose parents cannot 

get PLUS loans

$138,500 for graduate and 

professional students 

4.66% for undergraduates 

(subsidized and unsubsidized)

6.21% for graduate and 

professional

(unsubsidized only)

Direct PLUS Loans Graduate and professional 

students and parents of dependent 

undergraduate students

Students must be enrolled at least 

half-time, and applicant must have 

no adverse credit history

Financial need is not required

No aggregate limit 7.21%

Direct Consolidation Loans Students or parent borrowers 

wanting to combine multiple federal 

loans into one loan

Parent PLUS loans cannot be 

transferred to the student and 

become the student’s responsibility

Not applicable Rate is based on the weighted 

average of the interest rates of 

the loans being consolidated, 

rounded up to the nearest 1/8 

of 1%

Source: U.S. Department of Education. | GAO-14-866T

a

Federal student loan interest rates vary annually based on interest rates available in the financial 

markets and are determined each spring for new loans being made for the upcoming July 1 through 

June 30 period. Loans have a fixed interest rate for the life of the loan. The rates in this column apply 

to loans made on or after July 1, 2014 and before July 1, 2015, excepting Perkins loans, which have 

an interest rate of 5 percent regardless of the date the loan was disbursed. 

b

Subsidized loans are loans on which the federal government generally pays interest while the 

student is in school and during certain other periods. In the case of unsubsidized loans, interest starts 

accruing as soon as funds are disbursed, and the borrower is responsible for paying the interest. 

Federal Perkins Loans are subsidized as well, but Direct PLUS Loans are not. Direct Consolidation 

Loans may have both subsidized and unsubsidized components, depending on the loan types that 

were consolidated. 
 

Page 5 GAO-14-866T 

Education administers federal student loans and is generally responsible 

for, among other duties, disbursing, reconciling, and accounting for 

student loans and other student aid, and tracking loan repayment. 

Although no other federal agencies have a direct role in administering 

student loans, other agencies may become involved in the event that a 

borrower fails to make repayment. For example, Education may 

coordinate with Treasury to withhold a portion of federal payments to 

borrowers who have not made scheduled loan repayments. Such 

payment withholding, known as administrative offset, can affect payments 

to individuals by various federal agencies. Offsets of income tax refunds 

would involve the Internal Revenue Service and offsets of Social Security 

retirement or disability benefits would involve the Social Security 

Administration.

Student loans are also available from private lenders, such as banks and 

credit unions. Private loans differ from federal loans in that they may 

require repayment to begin while the student is still in school, they 

generally have higher interest rates, and the rates may be variable as 

opposed to fixed. Unlike federal student loans, private student loans may 

be more difficult to obtain for some potential borrowers because they may 

require an established credit record and the cost of the loan may depend 

on the borrower’s credit score. Private student loans are a relatively small 

part of the student loan market, accounting for 10 to 15 percent of 

outstanding student loan debt—about $150 billion—as of January 2012.

Older Americans—that is, Americans in or approaching retirement—may 

hold student loans for a number of reasons. For example, because such 

loans may have a 10- to 25-year repayment horizon, older Americans 

may still be paying off student loan debt that they accrued when they 

were much younger. They may also have accrued student loan debt in 

the course of mid- or late-career re-training and education. In addition, 

they may be holding loans taken out for the education of their children, 

either through co-signing or through Parent PLUS loans.
 

Page 6 GAO-14-866T 

According to the 2010 SCF, households headed by older individuals are 

much less likely than those headed by younger individuals to hold student 

loan debt.8 As of 2010, about 3 percent of surveyed households headed 

by people 65 and older—representing approximately 706,000 

households—reported some student loan debt. This compares to 24 

percent for households headed by those under 65—representing about 

22 million households.9 The decrease in the incidence of student loan 

debt is even more marked for households headed by the oldest 

individuals—only 1 percent of those aged 75 or over reported such debt. 

Although few older Americans have student debt, a majority of 

households headed by those 65 and older reported having some kind of 

debt, most commonly home mortgage debt, followed by credit card and 

vehicle debt. While the incidence of all debt types declines for households 

headed by those 65 and over, the incidence of student loan debt declines 

at a much faster rate. For example, the incidence of student loan debt for 

the 65-74 age group is less than half of that for the 55-64 age group—4 

percent compared to 9 percent. In contrast, the incidence of any type of 

debt for the older age group is only about 17 percent less than the 

younger age group—65 percent compared to 78 percent.

 

8

The 2010 SCF did not use the phrase “student loans”, but rather asked respondents 

whether they have loans for educational expenses. However, for consistency in usage, we 

will use the phrases “student loans” or “student loan debt” throughout this report. Because 

of the inclusive wording of the question, the SCF data reflect both federal and private 

loans. 

9

SCF survey responses are based on the financial situation of an entire household, not 

just the head of household. Because of this, it is possible that for some households 

headed by older Americans, the reported student loan debt is held by children or other 

dependents that are still members of the household.

Relatively Few 

Households Headed 

by Individuals 65 and 

Over Hold Student 

Loan Debt, but the 

Amount They Owe 

May Be Significant
 

Page 7 GAO-14-866T 

Table 2: Incidence of Debt by Age of Head of Household and Type of Debt, 2010 

Age of head of household Mortgagea Credit card Student Vehicle Other debtb Any debt

18-34 34% 39% 40% 32% 23% 78%

35-44 57 46 26 41 32 86

45-54 59 46 18 36 35 84

55-64 51 41 9 28 34 78

Total, 18-64 50 43 24 34 31 81

65-74 37 32 4 23 23 65

75 and older 21 22 1 8 13 39

Total, 65 and older 29 27 3 16 18 52

Total, all ages 45 39 19 30 18 75

Source: GAO analysis of Federal Reserve Survey of Consumer Finance SCF 2010 data. | GAO-14-866T

Note: In all cases, the percentages in this table have margins of error of plus or minus 4 percentage 

points or less, and in the large majority of cases about 2.8 percentage points or less. 

a

Data in this column reflect home mortgage debt other than home equity lines of credit. 

b

Other debt includes home equity lines of credit, other lines of credit, residential debt not for primary 

residence, installment loans for other than vehicles and education, as well as other types of debt such 

as loans against pensions or life insurance. 

While relatively few older Americans have student debt, data from the 

SCF suggest that the size of such debt among older Americans may be 

comparable to that of younger age groups. Among all age groups, the 

median balances of student and other types of debt are dwarfed by 

median balances of home mortgage debt. Estimates of median student 

debt balances for the various age groups range from about $11,400 to 

about $15,500. Median mortgage debt, in contrast, ranges from about 

$58,000 to $136,000 among the same groups. Among households 

headed by those 65 and older, the estimated median student debt was 

about $12,000, and among those 64 and younger, about $13,000. 

However, given the small number of older households with student loans, 

it is important to note that the estimate of student debt for the 65 and 

older age category is a general approximation.10

 

10The estimated median student debt of the 65 and older category—about $11,800—

carries a statistical margin of error of about $5,800. This occurs because few households 

in this age group reported student loan debt, and because of the wide dispersion in the 

outstanding balance figures reported. Because the dollar values for this age group are 

measured relatively imprecisely, we cannot say that the dollar values were statistically 

less than $17,500 or greater than $6,000.
 

Page 8 GAO-14-866T 

From 2004 to 2010, an increasing percentage of households in all SCF 

age groups have taken on student loan debt (see fig. 1). During the same 

period, the percentage of households headed by individuals 65 to 74 who 

had some student loan debt increased from just under 1 percent in 2004 

to about 4 percent in 2010—more than a four-fold increase. The 

percentage of households having student loan debt in the two youngest 

age household categories—those 18 to 34 and those 35 to 44—were and 

remain much larger. Their rate of increase in that type of debt from 2004 

to 2010 was comparatively modest—about 40 percent and 80 percent, 

respectively.

Figure 1: Percentage of Families with Student Loans

Note: Based on standard errors estimated using the SCF replicate weights, all estimates have a 

margin of error of 2.4 percentage points or less. 
 

Page 9 GAO-14-866T 

Data from Education’s NSLDS also indicates substantial growth in 

aggregate federal student loan balances among individuals in all age 

groups, especially older Americans.11

 

11Data in this paragraph and in figure 3 are drawn from the NSLDS, a comprehensive 

national database containing information about the federal financial aid history of students 

receiving federal assistance under Title IV of the Higher Education Act of 1965 (20 U.S.C. 

§§ 1070-1099d and 42 U.S.C. §§ 2751-2757b ). For this reason, it is not perfectly 

comparable to the SCF, which collects data via survey at the household level, and reflects 

both federal and private loans as well as other forms of debt. See additional detail about 

these two data sources in Appendix I. 

Aggregate federal student loan debt 

levels more than doubled overall, rising from slightly more than $400 

billion in 2005 to more than $1 trillion dollars in 2013 (see fig. 2). The total 

outstanding student debt for those 65 and older was and remains a small 

fraction of total outstanding federal student debt. However, debt for this 

age group grew at a much faster pace—from about $2.8 billion in 2005 to 

about $18.2 billion in 2013, more than a six-fold increase.
 

Page 10 GAO-14-866T 

Figure 2: Outstanding Federal Student Loan Balances by Age Group from Fiscal Years 2005 to 2013

Note: Values have not been corrected for inflation. From 2005 to 2013, prices increased by 

approximately 23 percent, according to the consumer price index. 

Although the Direct PLUS Loan program offers parents of dependent 

undergraduate students the opportunity to borrow to finance their 

children’s education, data from Education suggests that most federal 

student loan debt held by older Americans was not incurred on behalf of 

dependents, but primarily for their own education.12

 

12PLUS loans are a form of Direct Loan that can be used by graduate or professional 

degree students or parents of dependent undergraduate students to pay for educational 

expenses not paid for by other assistance. 20 U.S.C. § 1078-2. Parents or step-parents 

are eligible for such loans if their child is a dependent student enrolled at least half-time 

and the school participates in the Direct Loan Program. 

About 27 percent of 
 

Page 11 GAO-14-866T 

loan balances held by the 50 to 64 age group was for their children, while 

about 73 percent was for the borrower’s own education (see fig. 3). For 

age groups 65 and over, the percentages of outstanding loan balances 

attributable to the borrowers’ own education are even higher. For those 

aged 65-74, 82 percent of the outstanding student loan balances was for 

the individual’s own education, and for the 75 and older group, this was 

true of 83 percent. Because information on the age of the loans was not 

readily available to us, we do not know the extent to which the debt of 

older Americans is attributable to recently originated loans or loans 

originated many years ago during their prime educational years.

Figure 3: Percentage of Outstanding Loan Balances that Are Parent PLUS Loans or 

Other Federal Student Loans, by Age Group, Fiscal Year 2013
 

Page 12 GAO-14-866T 

Although older borrowers hold a small portion of federal student loans, 

they hold defaulted loans at a higher rate than younger borrowers. 

Individuals 65 or older held 1 percent of outstanding federal student loans 

in fiscal year 2013 (see fig. 4). However, 12 percent of federal student 

loans held by individuals age 25 to 49 were in default, while 27 percent of 

loans held by individuals 65 to 74 were in default, and more than half of 

loans held by individuals 75 or older were in default.13

 

13We measured the percentage of default by dividing the number of loans in default by the 

total number of outstanding loans for each age group. This differs from Education’s 

calculation for cohort default rates, which measures the rate of default for a school’s 

borrowers who enter repayment during a given fiscal year. Education officials noted that 

the two measures are not directly comparable. 

Older Borrowers Hold 

Defaulted Federal 

Student Loans at

a Higher Rate

and Default Can 

Have Serious 

Consequences

Older Borrowers Hold 

Defaulted Federal Student 

Loans at a Higher Rate, 

Especially for Their Own 

Education
 

Page 13 GAO-14-866T 

Figure 4: Percentage of Federal Student Loans in Default within Age Groups, Fiscal Year 2013

Note: Data is for loans in repayment status as well as loans not in repayment status for reasons such 

as deferment, forbearance, or a grace period. 

According to Education data, older borrowers are in default on federal 

student loans for their children’s education less frequently than they are in 

default on federal student loans for themselves. Specifically, in fiscal year 

2013, 17 percent of Parent PLUS loans held by borrowers ages 65 to 74 

were in default, while 30 percent of loans for their own education were in 

default.
 

Page 14 GAO-14-866T 

Delinquent borrowers—those who have missed one or more payments—

have more than a year to resume payments or negotiate revised terms 

before facing collection procedures. During the initial year of delinquency 

for Direct Loans, Education and the loan servicers make a number of 

attempts to help borrowers arrange for payments and avert default14 (see 

fig. 5).15 After the loan has been delinquent for 425 days (approximately 

14 months), Education determines whether to take actions intended to 

recover the money it is owed. These actions can have serious financial 

consequences for the borrower. For example, Education may charge 

collection costs16 up to 25 percent of the interest and principal of the 

loan.17 Interest on the debt continues to accumulate during the 

delinquency and default period. In addition, Education may garnish 

wages18 or initiate litigation. Education may also send the loan to a 

collection agency. The defaulted debt may also be reported to consumer 

reporting agencies,19

 

14Default generally occurs when a borrower fails to make a payment for more than 270 

days; 20 U.S.C. § 1085(l); 34 C.F.R. § 682.200(b). However, Education generally 

identifies defaulted loans as those 360 days or more past due, because the agency allows 

loan servicers 90 days to transfer Direct Loans to Education and Federal Family 

Education Loan lenders up to 90 days to file a default claim with the guarantor.

which can result in lower credit ratings for the 

borrower. Lower credit ratings may affect access to credit or rental 

property, increase interest rates on credit, affect employers’ decisions to 

hire, or increase insurance costs in some states.

15Outstanding loans made under the Federal Family Education Loan program, also known 

as guaranteed loans, follow a similar timeline except that defaulted loans are turned over 

to state guaranty agencies for debt collection, rather than to Education. 

1634 C.F.R. § 30.60(a)(7).

17In re Evans, 322 B.R. 429, 436.

1834 C.F.R. § 34.18. 

1934 C.F.R. § 30.35. Education also reports the borrower’s delinquency status to credit 

bureaus during the life of the loan.

Delinquent Borrowers 

Have Considerable

Time to Begin Repaying 

Federal Student Loans 

before Facing Collection 

Actions, which May 

Include Withholding 

Federal Payments
 

Page 15 GAO-14-866T 

Figure 5: Department of Education Timeline for Delinquent and Defaulted Direct Student Loan Processing

At 425 days, Education may also begin the process to send newly 

defaulted loans to Treasury to recover the debt by withholding a portion of 

federal payments—known as offset.20 Federal payments subject to offset 

include wages for federal employees,21 tax refunds,22 and certain monthly 

federal benefits, such as Social Security retirement and disability 

payments.23

 

2034 C.F.R. § 30.20.

Each year, Education prepares a list of newly defaulted loans 

for Treasury offset. In 2014, newly defaulted debt must have been more 

than 425 days delinquent before the July deadline so that it can be sent to 

Treasury in December. If the debt becomes 425 days delinquent after the 

2134 C.F.R. pts. 31 and 32.

2231 U.S.C. § 3720A.

2331 U.S.C. § 3716(c)(3)(A). The Debt Collection Improvement Act of 1996 centralized the 

collection of nontax debt at Treasury. Pub. L. No. 104-134, § 31001,110 Stat. 1321, 1321-

358. The Treasury Offset Program within the Bureau of the Fiscal Service carries out 

offset of federal payments for nontax debt, including defaulted federal student loans. 

Offset for student loan debt began in 1999.
 

Page 16 GAO-14-866T 

cutoff, it would be sent the following December (2015). Thus, the 

defaulted debt is sent to Treasury 3 to 15 months after 425 days of 

delinquency—between 17 and 29 months from the last date of payment 

on the loan (see fig. 6). According to Education officials, loans that have 

not been paid off are annually recertified as being eligible for offset.

Figure 6: Department of Education’s Schedule for Preparing Newly Defaulted Loan Debt for Treasury Offset, 2014

Note: Certain defaulted debt is not eligible for offset, such as debt being evaluated for discharge, in 

litigation, or where a Treasury offset hearing has been requested. 

After a defaulted loan is certified as eligible for offset to Treasury, certain 

payments, such as any available tax refunds, are offset immediately, 

without prior notice to the debtor. Borrowers with monthly benefits 

available for offset are informed by mail that their benefits will be offset in 

60 days and again 30 days before the offset is taken, allowing borrowers 

an additional 2 months to resume payment on their loan before offset 

occurs. Treasury assesses a fee24

 

2431 U.S.C. § 3716(c)(4).

for each offset transaction, which is 

subtracted from the offset payment. Other federal agencies may charge 

additional fees for each transaction depending on the type of payment 

being offset. For fiscal year 2014, Treasury’s fee was $15 per offset and 

other agency fees were up to $27.
 

Page 17 GAO-14-866T 

Federal tax refunds are the source for more than 90 percent of offset 

collection for federal student loan debt. Offsets from Social Security 

benefits represented roughly $150 million in 2013 or less than 7 percent 

of the more than $2.2 billion in federal payments offset by Treasury.

Table 3: Sources of Offset Payments for Federal Student Loan Debt in 2013 

Source of Payment Amount (millions) Percent of Total

Federal tax refunds $2,050 91.7

Social Security benefits $150 6.7

Other $35 1.6

Total $2,235 100

Source: GAO analysis of Department of the Treasury data. | GAO-14-866T

Note: Sources of payment categorized as “Other” include federal salary payments and federal vendor 

payments. 

The number of borrowers, especially older borrowers, who have 

experienced offsets to Social Security retirement, survivor, or disability 

benefits to repay defaulted federal student loans has increased over 

time.25 In 2002, the first full year during which Social Security benefits 

were offset by Treasury, about 31,000 borrowers were affected.26

 

25Specifically, the Social Security benefits that Treasury offsets are Federal Old-Age, 

Survivors, and Disability Insurance Benefits, issued under Title II of the Social Security 

Act. Treasury does not differentiate among retirement, survivor, and disability benefits in 

administering Social Security benefit offsets, since all of these benefits are eligible for 

offset. Supplemental Security Income benefits have been exempted from offset.

Of 

those borrowers, about 19 percent (6,000) were 65 or older. From 2002 

through 2013, the number of borrowers whose Social Security benefits 

were offset has increased roughly 400 percent, and the number of 

borrowers 65 and over increased roughly 500 percent (see fig. 7). In 

26The Debt Collection Improvement Act of 1996 necessitated Treasury promulgate (in 

consultation with the Social Security Administration, Railroad Retirement Board, 

Department of Labor, Department of Veterans Affairs, Office of Management and Budget, 

and others) regulations before it offset any Social Security benefits, and those regulations 

were finalized on December 23, 1998. Offset of Federal Benefit Payments to Collect Pastdue, Legally Enforceable Nontax Debt, 63 Fed. Reg. 44,986 (Aug. 21, 1998) (interim rule 

with request for comments) and 63 Fed. Reg. 71,204 (final rule). Treasury officials said 

that Treasury had to develop a system to process Social Security benefit offsets, including 

developing a way to provide information on offsets back to the Social Security 

Administration, before beginning offset of Social Security benefits in mid-2001. 
 

Page 18 GAO-14-866T 

2013, Social Security benefits for about 155,000 people were offset and 

about 36,000 of those were 65 and over.27

Figure 7: Number of Federal Student Loan Borrowers Whose Social Security 

Retirement, Survivor, or Disability Benefits Were Offset, By Age, 2002-2013

The majority of Social Security benefit offsets for federal student loan 

debt are from disability benefits rather than retirement or survivor 

 

27While defaulted federal student loan debt can lead to reduced Social Security benefits 

once in retirement, the presence of student loan debt for those nearing retirement can also 

affect retirement security as it may keep individuals from saving for retirement.
 

Page 19 GAO-14-866T 

benefits.28 In 2013, 70.6 percent of defaulted borrowers (105,000) whose 

Social Security benefits were offset received disability benefits (see fig. 

8).29 That year, about $97 million was collected through offset from 

disability benefits. For borrowers 65 and over, the majority of Social 

Security offsets are from retirement and survivor benefits because Social 

Security disability benefits automatically convert to retirement benefits at 

the beneficiary’s full retirement age, currently 66.30

Figure 8: Federal Student Loan Borrowers with Social Security Benefit Offsets in 2013, By Age of Borrower and Type of 

Benefit

About 33,000 

borrowers age 65 and over had Social Security retirement or survivor 

benefits offset in 2013 to repay defaulted federal student loans.

Note: The Social Security Administration automatically converts disability benefits to retirement 

benefits at the beneficiary’s full retirement age, currently age 66. 20 C.F.R. § 404.316(b)(2). 

 

28Borrowers with a total and permanent disability may apply for discharge of their federal 

student loans by providing, for example, a notice of award for Social Security Disability 

Insurance benefits indicating that the borrower’s next scheduled disability review will be 

within five to seven years. 20 U.S.C. § 1087(a)(1), 34 C.F.R. §§ 674.61(b)(2)(iv)(B) and 

682.402(c)(2)(iv)(B). Between July 1, 2013 and May 31, 2014, Education received 

196,851 applications for disability discharges and approved 139,855 in the same period.

Education informs borrowers about disability discharge during mandatory loan entrance 

and exit counseling, and borrowers can learn about disability discharge through 

Education’s websites or by contacting their loan servicer.

29For less than 5 percent of Social Security benefit offset payments, we were unable to 

determine whether the offset was taken from a disability insurance payment or we were 

unable to determine the age of the borrower. We excluded these payments from our 

analysis.

30 20 C.F.R. § 404.316(b)(2).
 

Page 20 GAO-14-866T 

The amount of money collected from Social Security benefit offsets to 

repay defaulted federal student loans has also increased, but the average 

amount offset on a monthly basis per borrower has remained relatively 

stable. Treasury collected about $24 million in offsets from Social Security 

benefits in 2002, about $108 million in 2012, and about $150 million in 

2013. However, over this period, the average amount offset on a monthly 

basis per borrower rose only slightly, from around $120 in the early 2000s 

to a little over $130 in 2013.

Although there are statutory limits under the Debt Collection Improvement 

Act of 1996 (DCIA)31 on the amount that Treasury can offset from monthly 

federal benefits, the current limits may result in monthly benefits below 

the poverty threshold for certain defaulted borrowers. Social Security 

benefits are designed to replace, in part, the income lost due to 

retirement, disability, or death of the worker.32 The DCIA set a level of 

$750 per month below which monthly benefits cannot be offset. In 1998, 

the amount of allowable offset was effectively modified under regulations, 

to the lesser of 15 percent of the total benefit or the amount by which the 

benefit exceeds $750 per month, thus creating a standard more favorable 

to defaulted borrowers.33

 

31Pub. L. No. 104-134, § 31001(d)(2)(D), § 3716(c)(3)(A)(ii), 110 Stat. 1321, 1321-360 

(codified at 31 U.S.C. § 3716(c)(3)(A)(ii)).

For example, a borrower with a Social Security 

benefit of $1,000 per month would have an offset of $150, because that is 

the lesser of 15 percent of the benefit—$150—and the amount of the 

benefit over $750, which is $250. This offset would leave the borrower 

with a monthly benefit of $850, which is below the poverty threshold for 

2013. The statutory limit of $750 for an offset was above the poverty 

threshold when it was set, in 1998. The offset limits have not changed 

since 1998, and the $750 limit represented about 81 percent of the 

poverty threshold for a single adult 65 and over in 2013. If the $750 limit 

had been indexed to the changes in the poverty threshold since 1998, in 

2013 it would have increased by 43 percent or to about $1,073 (see fig. 

9). Borrowers with benefits below this amount would not have been offset.

32In 2011, more than a third of beneficiaries 65 and over relied on Social Security benefits 

for 90 percent or more of their income.

33Offset should not exceed the amount of the debt. 31 C.F.R. § 285.4(e).

Adjusting Current Limits 

for Offset Can Keep 

Monthly Benefits Above 

the Poverty Threshold,

but Reduce Collections to 

Pay Defaulted Federal 

Student Loans
 

Page 21 GAO-14-866T 

Figure 9: Comparison of Offset Limit if Indexed to Poverty Threshold

Indexing monthly benefit offset limits to the poverty threshold can prevent 

some older borrowers from having offsets, but would also reduce 

Education’s recoveries from Social Security offsets. If the offset limit had 

been indexed to match the rate of increase in the poverty threshold, in 

2013, 68 percent of all borrowers whose Social Security benefits were 

offset for federal student loan debt would have kept their entire benefit, 

including 61 percent of borrowers 65 and older. An additional 15 percent 

of all borrowers and borrowers age 65 and older would have kept more of 

their benefits in that year. However, indexing the offset limit would have 

reduced the amount collected from Social Security benefits by 

approximately 60 percent or $94 million in 2013, representing about 4.2 
 

Page 22 GAO-14-866T 

percent of all dollars offset from all sources by Treasury for student loan 

debt in that year.

In conclusion, student loan debt and default are problems for a small 

percentage of older Americans. As the amount of student loan debt held 

by Americans age 65 and older increases, the prospect of default implies 

greater financial risk for those at or near retirement—especially for those 

dependent on Social Security. Most of the federal student loan debt held 

by older Americans was obtained for their own education, suggesting that 

it may have been held for an extended period, accumulating interest over 

time. The Social Security retirement or survivor benefits of about 33,000 

Americans age 65 and older were reduced through offset to meet 

defaulted federal student loan obligations in 2013. Because the statutory 

limit at which monthly benefits can be offset has not been updated since it 

was enacted in 1998, certain defaulted borrowers with offsets are left with 

Social Security benefits below the poverty threshold. As the baby 

boomers continue to move into retirement, the number of older Americans 

with defaulted loans will only continue to increase. This creates the 

potential for an unpleasant surprise for some, as their benefits are offset 

and they face the possibility of a less secure retirement.

Chairman Nelson, Ranking Member Collins, and Members of the 

Committee, this completes my prepared statement. I would be pleased to 

respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please 

contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. GAO staff who made key contributions 

to this testimony are listed in appendix II.

GAO Contact and 

Staff 

Acknowledgments
Appendix I: Objectives, Scope, and 

Methodology

Page 23 GAO-14-866T 

To understand the extent to which older Americans have outstanding 

student loans and how this debt compares to other types of debt, we 

relied primarily on data from the Federal Reserve Board’s Survey of 

Consumer Finances (SCF), a survey that is conducted once every 3 

years and gathers detailed information on the finances of U.S. families.1

SCF data is publicly available and was extracted from the Federal 

Reserve Board’s website.2

In addition, to describe the trend in federal student loan balances among 

older Americans and approximate the loans older Americans had taken 

for themselves or for their children, we obtained data from the 

Department of Education’s National Student Loan Data System 

(NSLDS).

Specifically, we analyzed data from the 2004, 

2007, and 2010 SCF to provide a range of information, including an 

overview of the percentage of families, by age of head of household, with 

student debt over time. An important limitation of the data is that debt, 

including student loans, is reported at the household level. As a result, the 

SCF survey responses represent the debt of the entire household, not 

just the head of household. Therefore, it is possible that for some 

households headed by older Americans, the reported student debt is 

actually held by children or other dependents that are still members of the 

household, rather than the older head of household.

3

 

1

To ensure representativeness of the survey, respondents are selected at random and the 

survey seeks to select families from all economic strata. In addition to education loans, the 

2010 SCF inquired about financial assets, income and taxes, businesses, vehicles, credit 

attitudes and credit cards, and other matters.

Specifically, we used data from summary tables that 

Education provided containing data from NSLDS for fiscal years 2005 

through 2013. We assessed the reliability of this data by reviewing data 

documentation and the queries used to create the summary tables from 

the underlying data system and by interviewing technical staff at 

Education involved in creating the summary tables. We determined that 

the data elements we used were sufficiently reliable for the purposes of 

2

The 2010 SCF did not use the phrase “student loans,” but rather asked respondents 

whether they have loans for educational expenses. However, for consistency in usage, we 

will use the phrases “student loans” or “student loan debt” throughout this report. Because 

of the inclusive wording of the question, the SCF data reflects both federal and private 

loans.

3

The NSLDS is a comprehensive national database maintained by the Department of 

Education that is used to readily access student aid data and track money appropriated as 

aid for postsecondary students. The database includes data on the various federal student 

loan programs.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 24 GAO-14-866T 

this testimony. The NSLDS data we obtained allows us to count federal 

student loans and loan balances, but not the number of borrowers. 

Although Education maintains borrower-level data, we were only able to 

obtain aggregated data by loan type during the course of our analyses. 

These summary tables reported that about 1,000 of the more than 6 

million Parent PLUS loans outstanding in fiscal year 2013 were to 

borrowers under the age of 25. According to Education, these cases 

resulted from a reporting issue where the date of birth of the Parent PLUS 

borrower was the reported as being the same as that of the student. We 

excluded these Parent PLUS loans from our analysis.

To understand the extent to which older Americans defaulted on federal 

student loans and the possible consequences of such a default, we relied 

on a number of data sources and agency documents related to federal 

student loans. To determine the extent to which older Americans have 

defaulted on federal student loans, we used data from the NSLDS 

summary tables we received from Education. To evaluate the 

consequences of default, we reviewed federal law, regulations, and 

agency documents describing the collection process for defaulted federal 

student loans, including offset of federal benefit payments through the 

Treasury Offset Program (TOP). We interviewed officials at Education 

involved in managing defaulted federal student loans, and we interviewed 

officials at Treasury, Education, and the Social Security Administration 

about the process for offsetting Social Security retirement, survivor, and 

disability benefits through the TOP. In addition, we interviewed Education 

officials and reviewed relevant documentation regarding Education’s debt 

collection policies and procedures; however, we did not audit their 

compliance with statutory requirements related to these activities.

To describe the extent of Treasury offset of Social Security Administration 

benefits for federal student loan debt, we used data on offset payments 

from the TOP for fiscal years 2001 through 2014. We assessed the 

reliability of this data by reviewing data documentation, conducting 

electronic testing on the data, and interviewing Treasury staff about the 

reliability of this data. Because the TOP data does not include the age of 

borrowers or the type of Social Security benefits that were offset, we 

obtained such information for relevant borrowers from the Social Security 

Administration’s Master Beneficiary Record using a match on Social 

Security numbers. We assessed the reliability of the data by reviewing 

data documentation, obtaining the computer code used to match 

borrowers to the Master Beneficiary Record, and interviewing the staff at 

the Social Security Administration who conducted the match. We 

determined that the data elements we used were sufficiently reliable for 
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-14-866T 

the purposes of this testimony. For about 0.25 percent of borrowers, we 

were unable to determine the borrower’s age, and we excluded these 

borrowers from age-based analyses. For about 4.3 percent of offset 

payments, we were unable to determine the type of benefit, and we 

excluded these payments from the analysis of the type of benefit that was 

offset. To evaluate the extent to which Social Security benefits would 

have been offset if the $750 limit below which benefits are not offset had 

been adjusted for changes in the poverty threshold, we analyzed TOP 

data to impute the amount of a monthly Social Security benefit payment 

from the size of the offset that was taken from that payment. We then 

applied a modified set of rules for calculating an offset amount to the 

imputed benefit, changing the $750 limit to $1,072.50—the adjusted 

amount for the limit had it been indexed to the poverty threshold—to 

estimate, for 2013, whether the monthly benefit payment would have 

been offset had the offset limit increased at the rate of the poverty 

threshold.
Appendix II: GAO Contacts and Staff 

Acknowledgments

Page 26 GAO-14-866T 

Charles A. Jeszeck, Director, (202) 512-7215 or jeszeckc@gao.gov

In addition to the contact named above, Michael Collins (Assistant 

Director), Michael Hartnett, Margaret Weber, Christopher Zbrozek, and 

Lacy Vong made key contributions to this testimony. In addition, key 

support was provided by Ben Bolitzer, Ying Long, John Mingus, Mimi 

Nguyen, Kathleen van Gelder, Walter Vance, and Craig Winslow.

Appendix II: GAO Contacts and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(131280)
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