Social Security Offsets: Improvements to Program Design Could Better Assist Older Student Loan Borrowers with Obtaining Permitted Relief
Released: 2016-12-20T00:00:00

Letter

Background

Older Americans—those in or approaching retirement—and other borrowers who default on their federal student loans are subject to a number of actions by Education to recover outstanding debt. Borrowers may elect a voluntary repayment option to avoid involuntary collection efforts, such as Social Security offsets. (See table 1).

While Education administers federal student loans, other agencies may become involved in the event that a borrower fails to make repayment. For example, as described in table 1, Education coordinates with Treasury to offset a portion of federal payments to borrowers who have not made scheduled loan repayments. Federal payments subject to offset include federal tax refunds, certain monthly benefits—such as Social Security retirement and disability payments—and wages and retirement benefits for federal employees. The Debt Collection Improvement Act of 1996 centralized the collection of nontax debt, including defaulted federal student loans, at Treasury. Specifically, the Treasury Offset Program within Fiscal Service carries out the transactions for offsetting all federal payments for nontax debt. Offsets for student loan debt through the Treasury Offset Program began in 1999 and were first applied to Social Security benefits starting in 2001.

After a defaulted loan is certified as eligible for offset, certain federal payments, such as any available tax refunds, are offset immediately. Borrowers with monthly federal benefits available for offset, such as Social Security benefits, 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 begins. In addition, Education sends a notice which provides details on the loans eligible for offset and describes options a borrower has to avoid offset. Treasury assesses a fee for each offset transaction, which is subtracted from the offset payment. For fiscal year 2015, Treasury’s fee was $15 for each monthly offset of benefit payments and $17 for a single tax refund offset.

Monthly Social Security benefit payments that are eligible for offset are the primary source of income for many older Americans at or near retirement. According to the Social Security Administration (SSA), Social Security benefits accounted for 90 percent or more of income for about 1 in 3 beneficiaries age 65 and older in 2014. Social Security’s retirement benefits, which individuals may claim as early as age 62, provide monthly income based on an individual’s work and earnings history and are intended to help ensure an adequate retirement income. Disability benefits replace a portion of an eligible workers’ income if they are unable to work due to a long-term disability. When individuals receiving Social Security disability benefits reach Social Security’s full retirement age— currently age 66 for people born in 1943-1954—their benefits convert from disability to retirement. Both types of monthly Social Security benefits are eligible for offset if the beneficiary is in default on a federal student loan. Social Security’s Supplemental Security Income benefits, which provide monthly cash assistance for eligible individuals with limited financial means, have been exempted from offset.

Certain borrowers may be eligible to discharge their federal student loan debt because they are totally and permanently disabled, regardless of whether or not they are in default. For example, borrowers of any age receiving Social Security disability benefits are eligible for a Total and Permanent Disability (TPD) discharge if SSA has determined that they have a disability for which medical improvement is not expected. Borrowers who are approved for a TPD discharge are generally subject to a 3-year monitoring period during which the discharged loans may be reinstated for several reasons, including that the borrower earned income over a specified threshold. The value of the discharged loan is generally treated as taxable income at the close of the 3-year monitoring period.

The Debt Collection Improvement Act of 1996 specified limits on the amount that Treasury can offset from monthly federal benefits. In 1998, Treasury further exempted all but 15 percent of Social Security benefit payments from offset. As a result, the amount of allowable offset is the lesser of 15 percent of the monthly benefit payment, the amount by which the benefit payment exceeds $750 per month, or the outstanding amount of the debt. For example, if a borrower with a Social Security benefit of $1,000 per month owes more than $150 in student loan debt, the borrower would have an offset of $150. This is because $150—equivalent to 15 percent of the benefit—is less than the amount of the benefit over $750, which is $250. In addition to the offset threshold, creditor agencies, such as Education, are permitted to grant relief in cases of financial hardship by certifying to Treasury that the offset allowable by law would result in financial hardship. Education established such a process in 2002 to grant financial hardship exemptions or reductions in offset.

Education’s Collection Efforts in Fiscal Year 2015

According to Education data for fiscal year 2015, about $4.5 billion was collected by Education, private collection agencies, and guaranty agencies on defaulted federal student loans, excluding loan rehabilitations and consolidations. About half of this amount came from offsets of any federal payments through the Treasury Offset Program, including but not limited to Social Security offsets (see fig. 1). Just over 30 percent of Education’s total collections came from administrative wage garnishment, and about 20 percent came from voluntary payments made by borrowers who may have been in the process of making the required number of on-time monthly payments to eventually rehabilitate or consolidate their loans and emerge from default. According to Education officials, borrowers may also make voluntary payments to avoid being subject to other collections actions, such as administrative wage garnishment. In addition to these collections, Education publicly reports recoveries from defaulted loans when they are successfully rehabilitated or consolidated.

Federal Student Loan Debt and Rates of Default, and Offset among Older Americans

Fewer older Americans hold student loan debt, but the rate of increase in the number of older borrowers and the amount of their debt has far outpaced younger borrowers. According to Education data for fiscal year 2015, there were about 37.4 million borrowers under age 50 compared to about 6.3 million borrowers age 50 to 64 and 870,000 borrowers age 65 and older. Since fiscal year 2005, these figures represented an increase in the number of borrowers in the age 50 to 64 and 65 and older groups of 119 percent and 385 percent, respectively. In comparison, the growth rate for borrowers age 25 to 49 was 62 percent over this time period. The corresponding increase in the amount of federal student loan debt held by borrowers age 50 to 64 was from about $43 billion to $183 billion over this decade, more than a three-fold increase. Among borrowers age 65 and older, the increase in the amount of federal student loan debt was even larger— it grew from more than $2 billion in fiscal year 2005 to almost $22 billion in fiscal year 2015, about a ten-fold increase. The loans on which older borrowers have defaulted may have either been for their own education or for their children’s education through Education’s Direct PLUS Loan program.

In fiscal year 2015, compared to younger borrowers a greater share of older borrowers were in default on their student loan debt and became subject to offset from any federal payment, including federal tax refunds and Social Security benefits. As shown in figure 2, the share of borrowers age 65 and older in default and offset in fiscal year 2015 was 37 percent and 5 percent, respectively. By contrast, the share of borrowers under age 50 in default and offset was 17 percent and 2 percent, respectively.

Growth in Social Security Offsets and Prevalence of Disability Benefits

In addition, our analysis of data we linked from Education, Treasury, and SSA shows that the number of borrowers, especially older borrowers, who have experienced offsets of Social Security benefits to repay defaulted federal student loans has increased over time. From fiscal years 2002 through 2015, the number of defaulted federal student loan borrowers of any age with Social Security offsets increased from about 36,000 to 173,000. For those under age 50, the number of borrowers with Social Security offsets increased from about 15,000 to 59,000 over this time period—a three-fold increase. For those in the age 50 to 64 and 65 and older groups, the increase was greater—about 407 percent and 540 percent, respectively. In total for fiscal year 2015, about 114,000 borrowers age 50 and older had Social Security disability, retirement, or survivor benefits offset to repay defaulted federal student loans.

Among those subject to Social Security offsets, most received disability benefits rather than retirement or survivor benefits. In fiscal year 2015, 69 percent of defaulted borrowers of any age whose Social Security benefits were offset received disability benefits, including 80 percent of those 50 to 64. Since disability benefits are automatically converted to retirement benefits once beneficiaries reach their full retirement age, the vast majority—95 percent—of defaulted borrowers age 65 and older received retirement or survivor benefits in fiscal year 2015. Of these borrowers, about 23 percent had previously received disability benefits.

Older Americans Often Had Held Student Loan Debt for Decades Prior to Offset, and Many Had the Maximum Possible Amount Withheld through Social Security Offset

Among borrowers 50 and older at the time of their initial Social Security offset, about 43 percent had held their student loans for 20 years or more. Three-quarters of older borrowers owed loans only for their own education, and most owed less than $10,000 at the time of their initial offset. The typical monthly offset was slightly more than $140 for older Americans, and almost half of those had the maximum possible reduction, equivalent to 15 percent of their Social Security benefit payment. From 2004 to 2014, the population of older Americans in Social Security offset became increasingly composed of those with Social Security income below the median benefit amount.

Many Older Americans Had Held their Student Loans for 20 Years or More at the Time of Initial Offset

About 43 percent of older student loan borrowers with a Social Security offset had held their student loans for 20 years or more, and about 80 percent had held their loans for 10 years or more. According to linked data from the Treasury Offset Program, Education’s National Student Loan Data System, and the Social Security Administration from fiscal years 2001 through 2015, the length of time borrowers had held student loans that were in default at the time of their first Social Security offset payment varied as shown in figure 3.

These older borrowers generally took out their loans at traditional mid- career working ages, and relatively few of them took out their loans at a traditional college-going age. Across all borrowers 50 or older, 61 percent became subject to offset for loans taken out in their 30s and 40s. For borrowers 50 to 64 at the time of their initial offset, 8.2 percent had outstanding loans that were taken out when they were under 25. Among borrowers 65 and older, 1.4 percent had outstanding loans that were taken out when they were under 25.

Most Older Americans Subject to Social Security Benefit Offset Took Out Loans for Their Own Education and Owed Less than $10,000 at the Time of Initial Offset

Older borrowers who became subject to Social Security offsets predominately defaulted on loans for their own education. Among older borrowers subject to offset of their Social Security benefits, more than three-quarters had defaulted on loans they took out for their own education rather than on loans they took out for a child’s education, known as Parent PLUS loans. For borrowers 50 to 64 at the time of initial offset, 82 percent had only ever held loans taken out for their own education. A greater proportion of borrowers 65 or older had Parent PLUS loans, but even among this group, about two-thirds of the borrowers never had Parent PLUS loans.

Total federal student loan debt for most older Americans who became subject to offset was less than $10,000, while a small percentage owed $50,000 or more. Initial balances tended to be slightly higher among borrowers 65 and older at the time of their initial offset compared to those 50 to 64. (See fig. 4).

Many Older Americans Subject to Social Security Offset for Student Loan Debt Have the Maximum Amount Withheld

About 44 percent of borrowers 50 and older at the time of their initial offset saw the maximum possible amount of their Social Security benefit withheld, equal to 15 percent of their benefit payment. The offset for the remaining 56 percent was less than the maximum 15 percent of their benefit payment. Most of these borrowers had between 10 and 15 percent of their benefit payment offset. A small proportion of borrowers (about 5 percent of those 50 to 64 and 4 percent of those 65 and older) were approved for a financial hardship reduction and paid a reduced amount of offset compared to what they would have otherwise.

The typical monthly Social Security benefit offset for older Americans across fiscal years 2001 through 2015 was slightly more than $140. The minimum amount was $25, which is the lowest amount at which Treasury will initiate an offset. For borrowers 65 or older at their initial offset, monthly payments ranged up to about $240 (see fig. 5). At the median, monthly offsets were similar for those 50 to 64 and 65 and older—$142 and $146, respectively.

Older Americans in Social Security Offset Increasingly Have Social Security Income Below the Median Benefit Amount

A growing share of Social Security beneficiaries is potentially subject to offset because the share of beneficiaries who have benefits below the protected threshold of $750 has declined. Because of the offset threshold, those receiving monthly benefits of $750 or less who hold defaulted federal student loans are not subject to offset. However, unlike Social Security benefits which are increased on an annual basis through cost of living adjustments, the Social Security offset threshold of $750 has not been adjusted. As the relative value of the offset threshold has declined over time, it applies to a smaller share of Social Security beneficiaries. Across all Social Security beneficiaries in 2004, about 42 percent of those receiving Social Security disability benefits and about 33 percent of those receiving retirement benefits had monthly benefits of less than $750 a month and thus could not become subject to offset. By 2014, however, the share of all beneficiaries below the $750 threshold had fallen to 19 percent of disability beneficiaries and 16 percent of retirement beneficiaries.

Over time, the population of older Americans in Social Security offset has become increasingly composed of those with Social Security incomes below the median benefit amount. In 2004, 21 percent of older Americans subject to Social Security offset received benefits that would have placed them in the bottom half of the overall benefits distribution before considering the amount withheld through offset (see table 2). By 2014, about 60 percent of older Americans subject to offset received benefits that, prior to offset, would place them below the median Social Security benefit amount—about $1,070 for disability beneficiaries and $1,320 for retirement beneficiaries in 2014.

Social Security Offsets Were a Small Share of Education’s Collections and Primarily Paid down Fees and Interest as Many Borrowers Remained in Default after 5 Years

A small share of Education’s total collections from the Treasury Offset Program came from Social Security offsets. Nearly three-quarters of the collections through Social Security offset were applied to Treasury Offset Program fees and to interest on the remaining loan balance, rather than to loan principal. With respect to outcomes for older borrowers, about half of borrowers remained in offset for 1 year or less while others remained in offset for multiple years. Over a 5 year time period after becoming subject to Social Security offset, nearly one-third of older borrowers were able to pay off their loans or obtain a disability discharge. However, other older borrowers remained in default on their student loans, and some had their loan balances increase over time despite the reductions to their Social Security benefits.

Social Security Offsets Were a Small Share of Education’s Collections through the Treasury Offset Program, but a Relatively Larger Share of These Offsets Went toward Program Fees

Data from Treasury show that Education collected about $171 million in Social Security offsets in fiscal year 2015, which amounted to a small share of the agency’s total collections from the Treasury Offset Program (see fig. 6). In total, Education collected almost $2.3 billion from offsets of any kind. The $171 million collected from Social Security offsets was equivalent to about 8 percent of this total. The vast majority of offsets for Education debt— nearly $2.1 billion, or about 91 percent—were from federal tax refunds.

As shown in figure 6, a relatively larger share of the total amount collected through Social Security offsets went toward Treasury Offset Program fees. In fiscal year 2015, the fee for each Social Security offset was $15 compared to $17 for each federal tax refund offset. Because offset fees are assessed per transaction, a borrower subject to monthly Social Security offsets could pay up to $180 per year in fees compared to $17 for a single federal tax refund transaction. According to data from Treasury, offset fees collected through the Treasury Offset Program amounted to about 11 percent of Social Security offsets collected for Education debt compared to 1 percent for federal tax refund offsets.

More Than 70 Percent of the Amount Collected through Social Security Offset Was Applied to Borrowers’ Fees and Interest

Collections on defaulted student loans through Social Security offset were applied primarily to borrowers’ fees—including Treasury Offset Program fees, as well as other fees charged to defaulted borrowers by Education—and interest. Treasury’s Bureau of the Fiscal Service retains the Treasury Offset Program fee and sends the remainder of the offset to Education. Education officials said that for each student loan, it applies the offset first to any outstanding fee balance, then to accrued interest, and then to principal. Of the approximately $1.1 billion collected through Social Security offsets from fiscal years 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest— 12 percent to fees and 59 percent to interest—compared to 28 percent that was applied to principal.

Among borrowers 50 or older at the time of initial offset, 53 percent had no portion of their offset payments applied to principal. This figure was even higher among older borrowers whose monthly benefit was below the poverty guideline prior to offset—68 percent of these borrowers had the full amount of their offset payments applied to fees and interest only. In contrast, 23 percent of borrowers 50 and older had the majority of their offset payments applied to principal. These borrowers came disproportionately from those whose monthly benefit was above the poverty guideline even after offset.

About Half of Older Americans with Defaulted Student Loans Remain Subject to Social Security Offsets for 1 Year or Less, but Those with Larger Balances Tend to Remain Longer

About half of older Americans who had Social Security offsets to repay student loan debt were no longer subject to offset within a year, while slightly more than one-third remained subject to offset for 2 years or more. Looking across the approximately 126,000 borrowers 50 and older whose initial Social Security offset was in fiscal years 2001 through 2010, 45 percent were subject to offset for a year or less, including 8 percent who were only subject to offset for a single Social Security payment. In contrast, 37 percent had their Social Security benefits reduced for multiple years. Specifically, about 25 percent were in offset for 2 to 5 years and 12 percent were in offset for 5 years or more. Results were similar between borrowers 50 to 64 and borrowers 65 and older (see fig. 7).

Older borrowers who were subject to offset for shorter periods tended to owe less than those who remained subject to offset for longer periods of time. Specifically:

Less than 1 year: These borrowers had a median loan balance of about $6,000 and an average balance of $12,150 at the time of initial offset.

2 to less than 5 years: These borrowers had a median balance of $8,000 and an average balance of $15,250.

5 or more years: These borrowers had a median balance of $12,800 and an average balance $22,450.

Almost One-Third of Older Americans in Social Security Offset Paid Off or Discharged their Student Loans, but About 36 Percent Were Still in Default after 5 Years

Many older borrowers had paid off or discharged their debt 5 years after their initial Social Security offset, but others remained in default and offset. Among those 50 and older at the time of their initial offset, about 32 percent had paid off or discharged their debt due to disability or school closure or otherwise closed their loans after 5 years for reasons other than death. An additional 13 percent died while their loans were outstanding (see fig. 8). The remainder—about 55 percent—had loans that were still open 5 years after their initial offset. Most of these borrowers with open loans were in default, but others had emerged from default by rehabilitating or consolidating their loans. Specifically, about 36 percent of those 50 and older at the time of their initial offset were in default after 5 years, including 20 percent who were still in offset. A small share—about 10 percent—was able to rehabilitate or consolidate their loans and was in repayment.

As shown in figure 8, older borrowers who had been in offset but then paid off their loans had substantially smaller outstanding loan balances at the time of their initial offset compared to other older borrowers subject to offset. For example, the median outstanding balance for older borrowers who were in offset but paid off their loans within 5 years was $2,379 compared to a median outstanding balance of $11,838 for borrowers who were still in offset.

Some Older Americans in Offset Have their Student Loan Debt Increase over Time

Among the 55 percent of older Americans who still had student loans open 5 years after their initial Social Security offset, most had made some progress toward paying down their loan balances, but the loan balances of others increased over time. Taking into account Social Security offsets as well as any other source of payment on a borrower’s loans, such as tax refund offsets or voluntary payments, the majority (60 percent) of these borrowers had decreased their loan balances. The loan balances of the remaining 40 percent grew because the payments on their loans from all sources did not keep up with accruing interest.

Borrowers who remained in Social Security offset after 5 years tended to have made more progress in paying down their loan balances compared to other borrowers who still had open loans but were no longer in offset. For example, some borrowers may no longer have been in offset because they rehabilitated or consolidated their loans, but were then in forbearance or deferment and, thus, were not making payments. Specifically:

Borrowers who remained in offset: Among borrowers 50 and older who still had offsets after 5 years, 32 percent had their loan balances increase after considering all sources of payment on their loans.

Borrowers with a financial hardship exemption from offset: 48 percent of borrowers 50 and older who still had open loans but had secured a hardship exemption—and thus were no longer making payments through Social Security offset—had a greater loan balance after 5 years.

Borrowers in forbearance or deferment: Borrowers 50 and older who exited offset by rehabilitating or consolidating their loans but were in forbearance or deferment at the end of 5 years—and thus not making payments—fared particularly poorly, as 67 percent owed more than they did when they entered offset.

More borrowers who were in Social Security offset for several years paid down principal with their offsets than borrowers who were briefly in offset, but some borrowers had not paid any principal after years of offsets. Among borrowers age 50 or older who stayed in offset for less than 1 year, 60 percent paid only fees and interest. For those in offset for more than 5 years, about one-third paid only fees and interest with their offsets, while about two-thirds paid some principal.

Program Design May Impact Retirement Security for Older Borrowers, Including Those Seeking Relief Permitted for Permanent Disability or Financial Hardship

A growing number of older borrowers may experience financial hardship in the years leading up to or during retirement because the Social Security offset threshold has not been adjusted for increases in costs of living since program provisions were implemented by regulation in 1998. In addition, many older Americans subject to offset may be eligible for a TPD discharge but they have not applied for one, and Education is taking steps to reduce the numbers of borrowers who have not applied. Education is also taking steps to automatically suspend offsets for certain disabled borrowers, but these steps could adversely affect borrowers at an older age. This is because Education does not provide these borrowers with information that would help them make more informed choices about applying for a TPD discharge. Further, for those who apply for a TPD discharge, key requirements of the 3-year monitoring period are not clearly communicated. As a result, older borrowers and others with disabilities may not complete required documentation to continue receiving this relief. Finally, Education established a process for granting financial hardship exemptions or reductions from offset, but they do not provide borrowers information about this option unless requested or review these exemptions once granted.

A Growing Number of Older Borrowers with Social Security Offsets May Experience Financial Hardship because the Offset Threshold Is Not Adjusted for Increases in Costs of Living

Older borrowers who remain in offset may increasingly experience financial hardship. Such is the case for a growing number of older borrowers whose Social Security benefits have fallen below the poverty guideline because the offset threshold is not adjusted for increases in costs of living. The threshold for Social Security offsets was established to prevent undue financial hardship on borrowers who rely on benefits for a substantial part of their income and who may be unable, rather than unwilling, to repay debts. This is consistent with the policy underlying the Social Security program that benefits are intended to help ensure older Americans have adequate retirement incomes and do not have to depend on welfare. According to SSA, Social Security benefits represented 90 percent or more of total income for about one-third of beneficiaries 65 and older in 2014. At the time it was set, in 1998, the threshold for Social Security offsets was above the poverty guideline— $750 a month represented about 112 percent of the poverty guideline for a single adult that year. However, in the absence of cost of living adjustments, the relative value of the offset threshold has declined over time to well below the poverty guideline. In 2016, the poverty guideline for a single adult equated to a monthly income of about $990, and the $750 threshold represented about 76 percent of this amount. Consequently, an increasing number of older Americans subject to Social Security offsets received benefits below the federal poverty guideline. In fiscal year 2004, about 8,300 borrowers in the 50 and older age category had benefits below the poverty guideline compared to almost 67,300 in fiscal year 2015 (see fig. 9). As a share of borrowers in the 50 and older age category, this growth was equivalent to an increase from 38 percent in fiscal year 2004 to 64 percent in fiscal year 2015. In addition, as shown in figure 9, a growing number of these older borrowers already received Social Security benefits below the poverty guideline before offsets further reduced their income.

Proposals to adjust Social Security offset provisions—such as by indexing the offset threshold—have been made by Education and proposed in legislation. In October 2015, Education proposed that the Social Security offset threshold be indexed to inflation. In its support for this proposal, Education noted that the Debt Collection Improvement Act of 1996 recognizes that Social Security is “a key source of income for many disabled and elderly Americans.” In addition to Education’s proposal, legislation was introduced in October 2015 to index the Social Security offset threshold to inflation.

It is also important to recognize that adjusting Social Security offset provisions would reduce Education’s recoveries from Social Security offsets. If the offset limit had been indexed to match the rate of increase in the poverty guideline, 62 percent of all older borrowers whose Social Security benefits were offset for federal student loan debt in fiscal year 2015 would have kept their entire benefit and 13 percent would have had a smaller offset. In total, our analysis found that Education would have collected about 40 percent of the amount collected through Social Security offsets for borrowers of any age in fiscal year 2015.

Many Older Borrowers Subject to Offset May Be Eligible for a Total and Permanent Disability Discharge under Education’s Process but Have Not Applied

Older Americans subject to Social Security offset may be eligible to have their student loan debt discharged because they are severely disabled. According to our analysis of linked data from Education, Treasury, and SSA, the large majority of older borrowers in offset who had their student loans discharged did so through Education’s total and permanent disability (TPD) discharge process. For those 50 and older who were initially subject to offset between fiscal years 2001-2010, TPD discharges represented about 90 percent of all non-death related discharges within 5 years after the initial offset. In total, after 5 years, about 8 percent of those 50 and older at the time of their initial offset applied for and successfully obtained a TPD discharge of their loans, while about 6 percent more were initially approved, but were still in the conditional 3-year monitoring period.

Education’s TPD discharge process permits such discharges for certain recipients of Social Security disability benefits of any age. Effective July 1, 2013, the eligibility criteria for TPD discharges were modified to include borrowers receiving Social Security disability benefits if SSA has determined they have a disability in which medical improvement is not expected. Borrowers who receive disability benefits but are not in this status, as well as other borrowers who do not receive disability benefits, may still apply for a TPD discharge based on a physician’s certification or a determination from the Department of Veterans Affairs. Under Education’s TPD process, when borrowers alert their loan servicer that they are disabled they are referred to Education’s centralized TPD servicer who provides them application materials. According to Education officials, effective from April 2016, offsets are suspended on the borrower’s loans during the 120-day application period. Once borrowers submit their completed application, Education determines if they are eligible for a discharge. As described earlier, borrowers approved for a TPD discharge are generally subject to a 3-year monitoring period during which the discharged loans may be reinstated for several reasons, including that the borrower earned income over a specified threshold. Once the 3-year monitoring period has been completed and the discharge processed, the loans cannot be reinstated. The value of the discharged loans is generally treated as taxable income at the close of the 3-year monitoring period, as described in the sidebar.

While TPD discharges represent the largest share of loan discharges for older Americans in offset, data from Education indicate that a considerable number of borrowers of any age, including those age 50 and older, who are eligible for a TPD discharge have not fully completed the application process. Education has taken steps to identify and conduct outreach to such borrowers of all ages, many of whom are certified for offset. Specifically, in December 2015 Education began matching NSLDS data with SSA records to identify borrowers who receive disability benefits and who are eligible for a TPD discharge because SSA had determined that their medical improvement was not expected. Once identified, borrowers were sent a letter explaining they are eligible for a TPD discharge and describing the actions they must take to apply. Based on this data matching, Education reported in April 2016 that it had initially identified approximately 387,000 borrowers of any age eligible for a TPD discharge. Of these, over 100,000 borrowers were in default and had been certified for offset. According to Education, as of July 31, 2016, TPD discharge applications were sent to about 234,000 borrowers based on the data matching and slightly more than 19,000 applications had been submitted and approved. Education officials said that nearly 1,800 additional applications had been submitted but not yet approved, generally because the agency was in the process of following up to obtain missing signatures on these applications. Approximately 213,000 borrowers who were sent forms had not yet applied. Education officials said that the agency will do additional follow up to increase the number of applications submitted and subsequently approved. According to Education officials, as of October 2016, an additional approximately 7,000 borrowers were identified as being eligible for a TPD discharge through the quarterly data match and were certified for offset.

New Efforts Education Is Taking to Automatically Suspend Offsets for Certain Disabled Borrowers May Adversely Affect Borrowers at Older Ages

As part of their data-matching effort described above, Education officials said they are immediately suspending offsets for borrowers of any age identified as receiving Social Security disability benefits for a condition in which medical improvement is not expected. According to Education officials, the agency decided in April 2016 to suspend offsets of any federal payments through the Treasury Offset Program for borrowers identified as eligible for a TPD discharge through the data-matching effort, regardless of whether or not the borrower returns the application form. The suspension from offset for those eligible but not approved for a TPD discharge continues for as long as Education identifies through its quarterly data match that the borrower has a disability in which medical improvement is not expected. During the time that offsets are suspended a borrower’s loan continues to be in defaulted status, and Education officials said that interest would continue to accrue on a borrower’s loan balance. Education officials also said that once disabled borrowers are converted to Social Security retirement benefits at their full retirement age—currently age 66 for people born in 1943-1954—offsets would resume unless the borrower applied and was approved for a TPD discharge or a financial hardship exemption. Using the linked NSLDS, Treasury Offset Program, and SSA data, we identified about 32,000 borrowers who were 50 and older at the time of their initial offset and who had a disability in which medical improvement is not expected, but who had not applied for a TPD discharge.

Although Education is now automatically suspending offset payments for borrowers who are TPD discharge-eligible, it has not taken steps to inform borrowers about key information. For example, Education has not informed borrowers that they are suspended from offset even if they do not apply for the TPD discharge. Further, Education has not provided information to borrowers about the potential consequences from continuing to accrue interest without applying for the TPD discharge, or that their offsets may later resume if their benefits are converted. Education’s Federal Student Aid division’s strategic goals include providing superior service and information to borrowers to support customers’ decision-making. In addition, Standards for Internal Control in the Federal Government state that the agency should externally communicate the necessary quality information to achieve the entity’s objectives, which in this case is to provide offset relief to borrowers eligible to receive it. Education officials said that the agency does not have written guidance on the suspension process and conducts the suspension by using the data match to directly inactivate offsets for borrowers in Fiscal Services’ system. Without any communication from Education, some borrowers who previously had Social Security offsets suspended while receiving Social Security disability benefits could be surprised by a reduction in their monthly Social Security benefits as their offsets resume once they begin receiving retirement benefits. Providing information to borrowers on the potential for offsets to resume once they begin receiving retirement benefits—and that interest on their loan will have continued to accrue in the interim—will allow borrowers to make a more informed choice about whether to apply for the TPD discharge.

Key Requirements of the TPD Discharge Process are Unclear, and Many Eligible Older Borrowers who Are Initially Approved Have Their Loans Reinstated

Unclear requirements for Education’s TPD discharge program may affect even those older borrowers in offset who do apply for relief, particularly for completing the 3-year monitoring period. Further, the effects of Education’s program design for TPD discharge are not limited to older borrowers but also impact disabled borrowers of any age who apply for the discharge. Using summary data from Education for all borrowers who applied for TPD discharge, we identified that almost 110,000 individuals were approved for TPD discharge in fiscal year 2014, while an additional almost 103,000 were approved in fiscal year 2015. The total loan balances discharged in those years were over $2.7 billion and nearly $2.6 billion, respectively. Education’s data show that a large number of those approved for a TPD discharge had their loans reinstated during the 3-year monitoring period. According to summary data provided by Education’s TPD servicer, in fiscal year 2015, 61,536 borrowers initially approved for a TPD discharge had loans reinstated during the 3-year monitoring period with a total value of about $1.2 billion. Further, our analysis of NSLDS data showed that about 20 percent of borrowers 50 and older at the time of their initial offset, and who were in the 3-year monitoring period from July 1, 2008 through the end of fiscal year 2012, later had their loans reinstated.

As shown in figure 10, the vast majority of borrowers of any age whose loans were reinstated—98 percent in fiscal year 2015—had this occur because they did not submit the annual income verification form.

We found that the high number of loans reinstated because the borrower did not provide the annual income verification form results from unclear annual reporting requirements. Specifically, documentation provided by Education to borrowers in the 3-year monitoring period does not clearly and prominently state all requirements to report income annually. Federal agencies are directed to use language that is clear, concise, and well- organized that the public can understand in documents that explain how to comply with requirements the federal government administers or enforces. Moreover, Standards for Internal Control in the Federal Government state that the agency should externally communicate the necessary quality information to achieve the entity’s objective. However, we found that the forms the TPD servicer provides to borrowers may not clearly communicate all requirements to avoid loan reinstatement. In particular, the TPD discharge approval form sent to borrowers states that violating certain requirements will result in loan reinstatement, such as earning income from employment above the poverty guideline amount for a family of two in their state. However, the additional annual reporting requirement may be unclear because the form does not explicitly state that the loan will be reinstated if the borrower does not return the annual income verification form—even if they have no earnings—to document that their earnings from employment are below the poverty guideline for a family of two in their state. In addition, we found that the annual income verification form sent by Education’s TPD servicer each year during the 3- year monitoring period does not state that failure to submit the form will result in loan reinstatement (see app. IV for a copy of documentation provided by Education’s TPD servicer). According to Education, if a borrower does not return the income verification form, the TPD servicer resends the form two additional times, but the follow up attempts do not include any additional language to alert the borrower that failure to return the form will result in loan reinstatement. For borrowers who fail to return the annual income verification form, their loans are reinstated and offsets may resume. The number of reinstatements may continue to grow as more borrowers are initially approved through Education’s recent data matching and outreach efforts unless unclear annual reporting requirements are addressed.

Borrowers whose loans are reinstated have 1 year to appeal to have their case re-evaluated, but most do not. The notice sent to borrowers informing them of the loan reinstatement provides the reason for the reinstatement and information on how to appeal. The borrower may appeal by mail or online through Education’s TPD servicer’s website. However, most borrowers who have their loans reinstated do not successfully appeal. According to Education’s data for borrowers of any age in the 3-year monitoring period, 20,368 reinstatement appeals were approved in fiscal year 2015, but 62,303 loans were reinstated during the prior fiscal year. Borrowers who do not appeal their loan reinstatement may have offsets resume.

In addition, even with improvements to clarify forms sent to borrowers, it may be difficult for disabled borrowers to comply with documentation requirements. Although Education officials recognize that the population of borrowers approved for a TPD discharge may have difficulty in providing documentation due to the severity of their disabilities, borrowers must take action to manually submit the income verification form each year during the 3-year monitoring period. In contrast to manual activities, Standards for Internal Control in the Federal Government state that automated control activities tend to be more reliable because they are less susceptible to human error and are typically more efficient. While Federal Student Aid’s responsibilities include improving operational efficiency and the quality of service for customers across the entire student aid life cycle, the agency has not taken steps to reduce burdens for disabled borrowers in providing the income verification form. In contrast for another process that involves income verification, Education has taken steps to improve operational efficiency and the quality of customer service by reducing burdens on borrowers through a tool that automatically identifies income information. Specifically, the application process for income-driven repayment plans includes a feature—the IRS Data Retrieval Tool—to transfer income information from a borrower’s federal tax return. According to Education, this tool has helped simplify and streamline the process for borrowers while improving both speed and accuracy. Because Education has not included such a method to automate annual income verification and streamline the annual income verification process for the TPD discharge, Education has not made it easy for some borrowers to comply with the requirements of the 3-year monitoring period and avoid having their loans reinstated and offsets resume.

Education’s annual income verification process may also result in under- reporting of earnings from some borrowers. For example, Education does not independently verify earnings for borrowers who submit the form and report they have no earnings. The borrower is required to sign and return the form certifying they had no earned income during the specified time period and is notified that there can be a penalty for making false statements or misrepresentations. However, Education officials said that they do not take action to verify this reported information. Borrowers who do report earnings are required to provide supporting documentation, such as their W-2. Education’s current verification process also does not address instances in which a borrower with income from multiple employers only includes income and supporting documentation from some, but not all, of them. This could result in borrowers receiving a TPD discharge when their loan should have been reinstated. Automating verification could also improve Education’s internal controls by addressing situations where people may fail to report some or all income.

Education Neither Provides Older Borrowers Information about the Financial Hardship Exemption Unless Requested Nor Does it Review These Exemptions after Initial Approval

Aside from a loan discharge for disability, older borrowers who are subject to offset may obtain relief by requesting a financial hardship exemption or reduction through a process established by Education, subject to certain requirements. This relief option is also available to borrowers under age 50. Borrowers who initiate contact with Education and state that they are experiencing a financial hardship due to Social Security offset are sent an application package to document their income and expenses. Borrowers with Social Security benefits below the poverty guideline as well as borrowers with higher benefits may apply. As shown in figure 11, Education determines eligibility based on a comparison of an individual’s documented income and qualified expenses, rather than a specific income threshold. Education officials said they immediately suspend or reduce Social Security offsets for borrowers making a first- time request while their application is processed. However, for borrowers who have previously applied but had offsets restarted, offsets continue during the subsequent application submission and review process.

Once a borrower submits the required documentation on income and qualified expenses—such as housing, utilities, health care, and transportation—Education then compares a borrower’s income and expenses and generally uses IRS collection standards to determine eligibility. If the application is approved, the borrower will either be exempted from offset or have a reduced offset. These borrowers’ loans are still considered to be in defaulted status, and interest continues to accrue on them.

According to Education’s data, more borrowers request a financial hardship exemption rather than a reduction in offset. Education reported that in fiscal year 2015, it received 12,573 requests for a financial hardship exemption from Social Security offsets from borrowers of all ages. During that same time frame, Education also received 2,631 requests for a reduction in Social Security offsets. While Education officials said they do not formally track the volume of hardship exemption and reduction approvals, they estimated that the majority of materially complete applications are approved. According to our analysis of NSLDS and Treasury Offset Program data, among borrowers 50 and older at the time of their initial Social Security offset, 16 percent obtained a hardship exemption and 5 percent obtained a hardship reduction at some point while they were in offset from fiscal years 2001 through 2015.

However, we found that Education does not make information about the existence of the financial hardship exemption option or application process generally available to borrowers subject to Social Security offset. Although borrowers who are subject to offset may request a financial hardship exemption or reduction, information about this option is not generally available because neither Education’s website nor forms sent to borrowers regarding offset inform them about these options. If borrowers are aware of this option—for example, as a result of information from an advocacy group–and contact Education or their servicer and state they are experiencing a financial hardship due to offset, then Education or the servicer would provide information to borrowers about the option and application process, including the Financial Status Statement to document their income and expenses. Standards for Internal Control in the Federal Government state that agencies should externally communicate necessary information to achieve the agency’s objectives. Although Education has established a financial hardship exemption option, officials acknowledged that the agency has not taken steps to proactively inform borrowers about this option or process. For example, Education’s website does not include information on the hardship exemption process in relation to the Treasury Offset Program. In addition, the financial hardship exemption application form is not included under “Offset Forms” in the website’s section on “Forced Collections.” Education officials said that borrowers may use the Financial Disclosure Statement for Wage Garnishment Hearings available on the website— instead of the Financial Status Statement sent by Education to those who initially contact and inform the agency of their financial hardship—to submit their income and expenses for the financial hardship exemption review. However, this option is not noted on the website. Moreover, the offset notice sent to borrowers does not provide information on the financial hardship exemption option or process. This notice is sent to borrowers 65 days prior to the start of an offset and informs them of options for objecting to collection of the debt. In contrast, the notice IRS sends to individuals with delinquent federal tax debt subject to the Federal Payment Levy Program provides information on how to avoid having Social Security income withheld in cases of financial hardship. By providing information about the existence of the hardship exemption option and its application process, Education could better serve borrowers who have little or no discretionary income—including those receiving benefits below the poverty guideline—and who may be eligible for permitted relief.

Borrowers who apply can be approved for a financial hardship exemption or reduction for a 1-year period, but these exemptions, once granted, are not subject to further review and remain in place indefinitely because there is no annual review process. According to Education officials, financial hardship exemptions and reductions are intended to be subject to an annual review. The approval letter sent to borrowers who are granted a financial hardship exemption or reduction states that their financial status will be reviewed again at the end of 12 months and that the borrower will need to submit a new Financial Status Statement or their offsets will resume. Standards for Internal Control in the Federal Government also state that the entity determines an oversight structure to fulfill responsibilities set forth by applicable guidance. However, according to Education officials, borrowers are not prompted to resubmit the form and, as a result, may continue to receive the hardship exemption or reduction indefinitely. Education officials said their Debt Management and Collection System requires enhancements in order to perform an annual review and there are no definitive plans to implement this feature. In the absence of an annual review, some borrowers who no longer qualify for a financial hardship exemption or reduction based on their income and expenses may continue to avoid offset or pay a reduced amount.

Conclusions

A growing number of individuals who are 50 and older have defaulted on their student loan debt and become subject to Social Security offset, which can have serious financial consequences for those in or approaching retirement, especially for those at lower income levels or who are unable to work and make up for lost income. Our analysis shows that more than half of this population was disabled and receiving Social Security disability benefits that were reduced through offset, while others may have been retired but relying on Social Security for most of their income.

While the federal student aid program is designed to hold borrowers accountable for repaying their debt, policy makers have sought to balance this goal with preserving the income security of those who cannot do so due to disability or old age. To that end, the Social Security offset threshold was implemented in 1998 to reflect this balance by establishing a minimum monthly benefit payment above the poverty guideline at that time. Although Social Security benefits are adjusted for increased costs of living, the effect is diminished because the offset threshold is not comparably adjusted. The result is that thousands of individuals subject to offset are left with benefits below the poverty guideline. By allowing the offset to reduce benefits below the poverty guideline, the balance of policy goals the Congress sought when enacting the Debt Collection Improvement Act of 1996 has not been maintained.

Similarly, total and permanent disability discharge provisions were established to assure that those who cannot work because they are disabled are relieved from having to repay their loans. Yet, our findings indicate that Education’s program design may make it difficult for borrowers of any age with total and permanent disabilities to avail themselves of this option. Education has taken important steps to identify and conduct outreach with these borrowers, but unless a better method is developed to allow them to verify their annual income during the 3-year monitoring period, the majority of loans may be reinstated after initially being approved. In addition, clearer communication from Education about related changes in policy to borrowers subject to offset who are identified as being eligible for a TPD discharge, including the consequences of failing to apply for such a discharge, would help borrowers make better decisions about managing their debt.

Lastly, unless Education takes steps to inform borrowers facing financial hardship that they may be eligible for relief, those with little or no discretionary income may continue to have their Social Security benefits reduced. Improving outreach for this option while establishing an annual review process for those who receive it will help ensure that only eligible borrowers are exempted from offset on an ongoing basis. In establishing such an annual review process, Education may identify lessons learned from addressing challenges with such requirements in the TPD discharge process in order to streamline information needed from borrowers.

Matter for Congressional Consideration

To preserve the balance between the importance of repaying federal student loan debt and protecting a minimum level of Social Security benefits put in place by the Debt Collection Improvement Act of 1996, Congress should consider modifying Social Security administrative offset provisions, such as by authorizing the Department of the Treasury to annually index the amount of Social Security benefits exempted from administrative offset to reflect changes in the cost of living over time.

Recommendations for Executive Action

We are making five recommendations to the Secretary of Education. To improve program design for Social Security offsets and related relief options, we recommend the following actions: Inform affected borrowers of the suspension of offset and potential consequences if the borrower does not take action to apply for a TPD discharge. Such information could include notification that interest continues to accrue and that offsets may resume once their disability benefits are converted to retirement benefits.

Revise forms sent to borrowers already approved for a TPD discharge to clearly and prominently state that failure to provide annual income verification documentation during the 3-year monitoring period will result in loan reinstatement;

Evaluate the feasibility and benefits of implementing an automated income verification process, including determining whether the agency has the necessary legal authority to implement such a process; Inform borrowers about the financial hardship exemption option and application process on the agency’s website, as well as the notice of offset sent to borrowers; and Implement an annual review process to ensure that only eligible borrowers are exempted from offset for financial hardship on an ongoing basis.

Agency Comments and Our Evaluation

We provided a draft of this product to the Department of Education, the Social Security Administration, and the Department of Treasury for review and comment. Treasury provided technical comments only, which we have incorporated where appropriate. SSA and Education generally agreed with the findings, conclusions, and recommendations of this report, and provided written comments that are reproduced in appendixes V and VI. Education also provided technical comments, which we have incorporated where appropriate.

In its written comments, Education noted that there are a growing number of older Americans with student loan debt and that this population experiences higher rates of default. Moreover, Education recognized the importance of improving and streamlining communications with these borrowers. To better inform borrowers whose offsets are suspended without applying for a TPD discharge, Education said it will implement a process to notify borrowers about the suspension. In addition, Education said it will take steps to improve the clarity of the TPD discharge forms and determine if the department has the legal authority and operational capability to automate the income verification process during the 3-year monitoring period. We agree that Education should take these steps to better inform borrowers and streamline the income verification process. We also appreciate Education’s willingness to review the TPD discharge forms. In doing so it is important to ensure that the forms clearly and prominently state that unless the income verification form is completed and returned—even if a borrower has no income to report—their loans will be reinstated.

Regarding the financial hardship exemption option, Education generally agreed with both recommendations and said it will take steps to inform borrowers about the option and application process. Education said it plans to revise its website to include such information but noted that the notice of offset is sent by Treasury. While Treasury sends a notice of offset to borrowers, Education sends borrowers a separate notice of offset that provides details on the loans eligible for offset and informs borrowers of their options to avoid offset. In addition to the options already described on Education’s form, including the option for borrowers to apply for a financial hardship exemption from Social Security offset would provide borrowers more complete information. We appreciate Education’s willingness to coordinate with Treasury to improve communication with borrowers about the availability of this relief option, but we continue to believe that Education should provide comprehensive information on relief options in the form Education sends borrowers. Education also noted that it plans to automate the process for tracking financial hardship exemptions, which will allow for regular reviews to ensure that only eligible borrowers are exempted. However, Education said that due to funding limitations the implementation of these improvements has not been scheduled. We encourage Education to take the necessary steps to implement an annual review process.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Education, the Secretary of the Treasury, and the Acting Commissioner of the Social Security Administration. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-7215 or bawdena@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII.

Appendix I: Objectives, Scope, and Methodology

Our objectives for this review were to examine: (1) characteristics of student loan debt held by older borrowers subject to offset and the effect on their Social Security benefit, (2) the amount of debt collected by the Department of Education (Education) through offsets and the typical outcomes for older borrowers; and (3) effects on older borrowers as a result of program design for offsets and related relief options.

To answer our research objectives, we analyzed administrative data from Education, the Department of the Treasury’s (Treasury) Bureau of the Fiscal Service (Fiscal Service), and the Social Security Administration (SSA). Specifically, we obtained and linked administrative data from Fiscal Service’s Treasury Offset Program to Education’s National Student Loan Data System (NSLDS) and SSA’s Master Beneficiary Record (MBR) and Disability Control File (DCF) in order to examine the student loan history and outcomes for older Americans with Social Security offsets. We also examined aggregated data provided by Education on the total number of borrowers in default and offset by age and the total outstanding federal student loan balance by age.

In addition, we reviewed relevant federal laws, regulations, and documentation. We also interviewed agency officials to obtain information about offsets of Social Security benefits, as well as Education’s processes for discharging student loan debt in cases of disability and claiming an exemption or reduction from offset due to financial hardship. We obtained documentation from agency officials, including forms sent to borrowers during the application and approval process for both Total and Permanent Disability (TPD) discharges and financial hardship exemptions. To further examine the TPD discharge process, we analyzed aggregated data provided by Education’s TPD servicer on TPD discharge applications, approvals, and reinstatements, including the total volume and dollar value. To identify the amount Education collected on defaulted student loans through offsets and other payment mechanisms, we analyzed data provided by Education’s Default Resolution Group, including aggregated data from the Debt Management and Collection System and information reported by guaranty agencies. We also analyzed aggregated data provided by Fiscal Service on fees assessed by the Treasury Offset Program by type of offset for Education and other federal agencies.

Finally, we analyzed published data from the 2013 wave of the Federal Reserve Board’s Survey of Consumer Finances (SCF) to update figures which we previously reported on the overall share of households with student loan debt with the most recent data available. This updated data is available in appendix III. The SCF gathers various economic and financial data at the household level, such as student loan, mortgage, and credit card debt, and is conducted once every 3 years. Because survey responses are based on the financial situation of an entire household, not just the head of household, it is possible that the reported student loan debt for some households headed by older Americans is held by children or other dependents that are still members of the household.

Treasury Offset Program data

The Treasury Offset Program carries out transactions for offsetting federal payments for delinquent nontax debt. We obtained record-level data for 480,097 individuals who were subject to offset of Social Security benefit payments due to a defaulted debt owed to Education from fiscal year 2001 to 2015, including information on the amount and date of offsets.

NSLDS is Education’s central database for information on federal financial aid for higher education, including student loans. We obtained record-level data on borrowers’ loan histories from NSLDS on 477,867 individuals identified from the Treasury Offset Program data as having been subject to offset of Social Security benefit payments due to defaulted federal student loans at some time from fiscal year 2001 to 2015. A small proportion of the individuals—about 0.46 percent—who were identified through the Treasury Offset Program data did not match to student loan records in NSLDS. According to Education officials, debt owed to Education can also result from overpayments of federal education grants such as Pell grants, and grant recipients who do not repay this debt timely are submitted to Treasury for offset.

We examined a variety of information from NSLDS for borrowers with Social Security benefit offsets, including loan disbursement dates, default dates, loan statuses, and loan balances over time. Analyses that used NSLDS data on loan balances were restricted to fiscal year 2006 forward because NSLDS did not consistently retain detailed loan balance history prior to 2006. Analyses of borrower outcomes over time were restricted to borrowers who entered offset early enough that sufficient time had elapsed to observe the outcomes over the entire length of time, as noted in the report.

SSA’s MBR contains administrative records of Social Security beneficiaries. We obtained record-level data on the ages of borrowers certified for offset for Education debt from fiscal year 2001 to 2015, as well as the types and amounts of benefits they received. SSA’s DCF contains additional administrative data on Social Security Disability Insurance beneficiaries. From the DCF, we obtained information on the continuing disability review category (e.g., the determination that medical improvement is not expected) for the population of borrowers identified from the Treasury Offset Program data.

Data Reliability

We conducted a data reliability assessment of the summary and record- level administrative data we used by reviewing documentation on the datasets, requesting and reviewing the queries used to generate the data extracts, and interviewing officials about how the data are collected and their appropriate uses. When possible, we compared our summary-level data to publicly reported information to ensure completeness and accuracy. Additionally, we performed electronic testing of the record-level linked administrative data to identify missing or unreliable data and to resolve discrepancies across the separate data sources. In particular,

Date of birth: NSLDS was missing date of birth information for some borrowers. To ensure we had a reliable date of birth variable, we also obtained date of birth information in the MBR data. We compared these two sources to identify and resolve discrepancies, including using dates of loan disbursement to ensure that date of birth was consistent with plausible borrower ages at time of loan disbursement.

Consolidation loans: In determining the length of time borrowers held loans prior to offset, we matched consolidation loans to the underlying closed loans that were paid off via consolidation and included information on these loans. We excluded all other loans that were paid off prior to offset.

Application of offset payments: NSLDS did not always contain complete information on the application of offset payments across loan principal, interest on the outstanding balance, and program fees due to data reporting issues. We measured the total amount of offset payments and the number of individual offset transactions per borrower using Treasury Offset Program data. We only included a borrower in our analysis if we were able to identify the application of the offset payment for a majority of the borrower’s individual offset transactions.

Death discharges: Loan discharges due to death may not occur immediately after a borrower’s death because Education requires documentation of the death. When we identified a borrower as deceased through the MBR data, we considered the borrower to have received a death discharge as of the month of the borrower’s death, regardless of whether a death discharge was indicated in the NSLDS data.

Through our testing, we identified some data elements that were not sufficiently reliable, and we did not use these data elements in our analysis. Additionally, in certain analyses we were unable to calculate measures for a small proportion of borrowers, and we note these limitations in the report. We excluded 13 borrowers for whom no date of birth could be determined from all analyses, and we excluded 33 borrowers for whom MBR data was unavailable from analyses that required MBR data elements. For purposes of our analysis, we found the data elements we ultimately reported on to be sufficiently reliable based on this assessment.

Appendix II: Additional Data Analysis of Student Loan Debt for Older Americans

Trends in Federal Student Loan Debt, Default, and Offset

The total amount of federal student loan debt held by borrowers age 50 and older is considerably less than for younger age groups. Figure 12 shows the total dollar amount of federal student loan debt held by borrowers of all ages and older Americans in particular, since fiscal year 2005.

While fewer older Americans hold student loan debt, the rate of increase in the number of older borrowers and the amount of their debt far outpaced younger borrowers (see fig. 13).

As the number of federal student loan borrowers and the amount of debt have increased over time, so have the number of borrowers who are in default and subject to an offset of any federal payment. Data from Education show that, from fiscal years 2005 to 2015, the total number of borrowers of all ages in default increased from about 4.3 million to 8.6 million. The corresponding increase in the number of borrowers subject to any offset was from about 387,000 to slightly more than 1 million. Over the same time period, borrowers were increasingly likely to default on their loans and become subject to offset. The share of borrowers of all ages in default increased from about 15 percent in default in fiscal year 2005 to 19 percent in fiscal year 2015 while the share of borrowers in offset increased from 1.4 percent in fiscal year 2005 to 2.3 percent in fiscal year 2015.

The number of borrowers, especially older borrowers, who have experienced offsets of Social Security benefits to repay defaulted federal student loans has increased over time. As shown in figure 14, there are more borrowers subject to Social Security offsets who received disability benefits compared to retirement or survivor benefits. Once disabled beneficiaries reach their full retirement age (currently age 66 for people born in 1943-1954), disability benefits are automatically converted to retirement benefits. Thus, for defaulted borrowers age 65 and older, the vast majority—95 percent—received retirement or survivor benefits.

Older Borrowers with Student and Parent PLUS Loans

The majority of older borrowers hold loans taken out for their own education rather than for their children’s education. According to data from Education, about 31 percent of borrowers age 50 to 64 had loans taken out for their children’s education in fiscal year 2015. Among borrowers age 65 and older, this figure was less, about 24 percent. Instances of default are substantially lower for older Americans with loans for their children’s education compared to student loans for their own education. In fiscal year 2015, the share of borrowers age 50 to 64 with Parent PLUS loans in default was 10 percent compared to 35 percent for those with student loans. Likewise, the share of borrowers age 50 to 64 with Parent PLUS loans in offset was about 1 percent compared to 3 percent for those with student loans.

Length of Time in Default Prior to Offset

Many older borrowers who held student loans for an extended period of time had also been in default for a decade or more before becoming subject to Social Security offset. About 68 percent of borrowers who eventually became subject to Social Security offset were not yet receiving Social Security retirement, disability or survivor benefits when they defaulted on their student loans. Among these borrowers, most had been in default for a decade or more before becoming subject to Social Security offset, and just over 20 percent of these borrowers had been in default for 20 or more years at the time they became subject to offset.

Other older Americans who were already receiving Social Security benefits at the time of default became subject to offset within shorter timeframes. About 71 percent of borrowers who were already receiving Social Security benefits when they defaulted on their student loans became subject to offset within 3 years after their default. We previously reported that under Education’s annual process for certifying defaulted debt for offset, Education sends the defaulted debt to Fiscal Service between 17 and 29 months after the last payment on the debt. Not all defaulted borrowers receiving Social Security benefits are immediately subject to offset: For example, borrowers whose benefit amount is below $750 per month are not subject to offset but may later become subject to offset if cost of living adjustments increase their benefits above the $750 threshold. About 20 percent of older borrowers who were receiving Social Security benefits at the time of their default became subject to offset 5 or more years after their default.

Student Loan Balances of Older Borrowers with Social Security Offsets Compared to Other Older Borrowers

Older borrowers who became subject to Social Security offsets tended to have relatively lower outstanding student loan balances compared to other older borrowers who were not in default. As shown in table 3, the average amount of debt held by these older borrowers with Social Security offsets was less than the average for older borrowers who were not in default. Looking only at borrowers in default, older borrowers who became subject to Social Security offsets owed more than the average for all defaulted borrowers of their age.

Appendix III: Supplemental Data Analysis Tables for Older Americans with Student Loan Debt

75 and older Total, all ages

*Ten or fewer observations.

Fiscal Year

Discharged – Total and Permanent Disability (TPD) Loans open - total Rehabilitated or consolidated – total

14,308 . . . .

67,369 . . . .

78,464 . . . .

26,715 . . . . . . .

Total collections

$175,923,528 1 year or more 45.07 30,653 2015 Total distinct borrowers, any year 36,471 64,197 . . . . . . . . . . . .

Appendix IV: Copy of Education’s Total and Permanent Disability Servicer’s Form for Annual Income Verification

Appendix V: Comments from the Department of Education

Appendix VI: Comments from the Social Security Administration

Appendix VII: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Michael Collins (Assistant Director), Sharon Hermes (Analyst in Charge), Christopher Zbrozek, and John Mingus made key contributions to this report.

Also contributing to this report were Deborah Bland, Ben Bolitzer, Helen Desaulniers, Charles Jeszeck, Theresa Lo, Ying Long, Sheila McCoy, Kevin Metcalfe, Mimi Nguyen, Dae Park, Kenneth Rupar, Kathleen van Gelder, Walter Vance, and Adam Wendel.