Is This Student Loan Debt Collection Tactic Out of Control?

Much like back taxes and delinquent child support payments, college loan debt cannot be extinguished by bankruptcy. And, much to the dismay of thousands of Americans, long-ago student debt that borrowers thought had either been paid off or forgiven is coming back to haunt them - in the form of income garnishment.

Wages and Social Security targeted

According to The Wall Street Journal , nearly 175,000 people are experiencing wage garnishment by the federal government for defaulted student loans, a 45% increase from just a decade ago. Possibly, this is due to the tightening of bankruptcy laws that occurred in 2005, making all student loans exempt from bankruptcy - unless a borrower could show undue hardship, a practically unprovable set of circumstances.

It's bad enough to suddenly have 15% of your after-tax pay taken by the government, but it isn't only working folks who are getting nabbed. Social Security recipients are also feeling the sting of those often long-forgotten loans.

For these retirees, some who are in their seventies and eighties, the situation is especially distressing: not only are they making due on less income, but the intervening years have caused their original debt to balloon, often to unmanageable amounts. In one case, a 67-year-old man saw his original debt of $3,750 increase to over $21,000 , which he is required to repay.

Boomers are in particular trouble

Baby boomers are in a real pickle, holding not only their own college debt, in many instances, but that of their children and grandchildren as well. Americans aged 60 and older hold $43 billion in unpaid student loans, and the average debt level is $20,000. That's 60% higher than just nine years ago. In 2013, 156,000 retirees had their Social Security checks garnished for unpaid student loan debt - almost as many as non-retirees. Approximately 4.7 million boomers in their fifties still owe money on college loans.

There are options

Luckily, there are some steps you can take if the government notifies you that it plans to garnish your Social Security benefits. Don't ignore the notice - you will get a 20-day window in which to request a review on the issue. You can make this request at any time, but you will be subject to garnishment in the meantime.

If you cannot get a hardship exemption, ask about an income-based repayment plan. In the past, you would have had to pay high payments for a few months after your loan came out of default, but a new law has put that onerous requirement in the past.

The new loan rehabilitation rules now clearly state that the government can take 15% of the amount that your adjusted gross income exceeds your state's poverty level. For many retirees on Social Security, that number may be zero, which means you will only have to pay a $5 per month minimum on your debt.

Remember that, for non-tax debt, the first $750 of monthly Social Security income is exempt, so you will never receive a check lower than that amount due to government garnishment. These rules pertain only to federal student loans; private lenders cannot touch your benefits.

In spite of the apparent heartlessness of the government toward retirees, there is little likelihood that federal student debt will ever be dischargeable like other forms of debt, since the programs are taxpayer-supported.

The new rules take into consideration the lower income of retirees, however - so taking advantage of these repayment options can, at least, make the debt less onerous for those least able to pay.

Student loan debt surges for senior citizens

When they should be worrying about affording retirement, a growing number of senior citizens are drowning in student loan debt instead.

Between 2005 and 2013, student loan debt among seniors 65 and older rose by more than 600% from $2.8 billion to $18 billion, according to a new report from the Government Accountability Office.Out of all student debt holders, seniors still account for a small percentage. But their ranks are growing rapidly -- quadrupling in size since 2004 to 706,000 households.

While the majority of debt, about 80%, owed by seniors comes from loans taken out to fund their own college educations, 20% of loans were taken out for a child or dependent, according to the GAO report.

At age 57, Rosemary Anderson is approaching retirement age with $152,000 in student loan debt.

Twenty years ago, she took out $65,000 in loans in order to pay for her bachelor's and master's degrees. But after getting divorced, losing her job and caring for her sick brother, she basically gave up on making payments. She was hit hard by interest and penalties and the amount she owes has since climbed by tens of thousands of dollars.

40 million Americans now have student loan debt.

CNNMoney profiled Anderson last month, and she testified at a congressional hearing about older Americans with student debt on Wednesday.

"I will be indebted for life," Anderson said in her testimony. "I find it very ironic that I incurred this debt as a way to improve my life, and yet I sit here today because the debt has become my undoing."

Default rates have also been rising with a debtor's age, the report found. While only 12% of federal student loans belonging to people ages 25 to 49 were in default in 2013, that rate spiked to 27% for Americans between 65 and 74 years old, and to more than 50% for people 75 and older.

Retirees' Social Security checks garnished for student loans.

Failing to pay back these loans can have dire consequences. Lenders will even take a bite out of Social Security payments to get the money they're owed.

Last year, 156,000 Americans had their Social Security benefits garnished because they had student loans that were in default, according to analysis conducted by the U.S. Treasury for CNNMoney. That's triple the 47,500 people who had payments garnished in 2006.

"Some may think of student loan debt as just a young person's problem," said Senate Special Committee on Aging Chairman Bill Nelson. "Well, as it turns out, that's increasingly not the case."

How to Avoid Losing Social Security to Student Loans

Much like unemployment isn’t going to get you out of repaying student loans, retirement isn’t going to, either. Social Security recipients – whether they’re retired or disabled – can have up to 15% of their checks taken for defaulted federal student loans, and it’s a common problem.

Joshua Cohen, a consumer law attorney who bills himself as The Student Loan Lawyer, says he hears from someone in this situation about every two weeks. He’s received a steady flow of clients losing Social Security to student loan payments since he started practicing in 2008.

“A majority of them are for parent PLUS loans,” Cohen said. “Nobody told them about affordable repayments, and there’s a sizable number of boomers and others who were forced into retirement earlier than they expected because of the downturn.”

He remembers the first client he encountered with this issue: A retired truck driver came to him after his Social Security checks came in smaller than usual, and Cohen helped him consolidate his loans to emerge from default. He then entered an income-contingent repayment plan of $5 a month, eliminating the offset from his Social Security payout.

This applies to any loan situation: When you realize you can’t afford the payments, act immediately. Student loans offer a variety of repayment options allowing borrowers to lower their monthly payments, and contacting your loan servicer to work out an affordable payment should be your first step.

“If that doesn’t work, the Department of Education has an ombudsman you can contact, and if that fails, contact a lawyer,” Cohen said. “When contacting the ombudsman, there’s no harm in contacting the CFPB (Consumer Financial Protection Bureau), because it has jurisdiction over student loans.”

Letting unaffordable loan payments go unaddressed is a near-certain route to default, which can seriously damage your credit, not to mention the potential wage garnishment (or Social Security offset). That path only holds more trouble.

“For a lot of my folks, they are barely surviving to begin with,” Cohen said. “They have credit card debt, because that’s how they’re charging their prescriptions. The Social Security check is their credit card payment. It could be their auto insurance if they’re still driving. It can sometimes cut into their food bill.”

Student loans have a lot of potential to damage your credit and your well-being, so prioritize your payments and take advantage of assistance programs available to you. You can see how your student loans are currently affecting your credit scores for free on Credit.com.