The Student Debt Crisis Is Driving Elderly People Into Poverty

This isn't how it's supposed to work.
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WASHINGTON ― Student debt is forcing tens of thousands of elderly Americans into poverty, according to a new Government Accountability Office report.

The findings are startling. More than 110,000 senior citizens had their Social Security checks garnished in 2015 to pay off student loans they’d already defaulted on. Nearly 70,000 Americans over the age of 50 are living in poverty as their Social Security benefits are cut to pay off student loan debts.

Student lending is typically thought of as a millennial problem ― one of exploding college tuition costs and ruthless interest rates that took hold over the past 20 years.

But the GAO report ― requested by Sens. Elizabeth Warren (D-Mass.) and Claire McCaskill (D-Mo.) ― demonstrates that the debt hardship is shared across generations.

The elderly student debt nightmare is not going to sort itself out. A full 68 percent of older borrowers living in poverty with Social Security garnishment are only seeing their benefit cuts devoted to interest and fees. Their overall debt burden is not diminishing. They will never stop making payments under the current system without a new source of income.

The federal government is profiting from this mess. Every time a debt collector scrapes a Social Security check, the U.S. Treasury Department collects $15.

“Our government is shoving tens of thousands of seniors and people with disabilities into poverty through garnishment every year ― and charging them $15 every month for the privilege ― just so that the Department of Education can collect a little bit more interest and keep boosting the government’s student loan profits,” Warren said in a written statement provided to reporters. “This is predatory and counterproductive.”

The problem is getting worse, not better. Since 2005, the total student debt owed by Americans over the age of 65 has increased nearly fourfold.

This is not how either Social Security or private sector lending are supposed to work. Social Security is designed as a basic social insurance program ― you pay in as you work, you cash out when you retire. Functionally, this makes it an anti-poverty program. Old people don’t work, which means they don’t get paid, and so receiving a Social Security check keeps 22 million Americans out of poverty, according the Center on Budget and Policy Priorities, a liberal-leaning think tank. When President Franklin Roosevelt designed the program in the 1930s, he didn’t include a caveat for people with lots of debt. If you paid in, you got the check, and any issues between you and your creditors were your own affair, not the government’s.

Lending is not a charitable enterprise. The Salvation Army doesn’t collect interest on bell-ringers in Santa Claus outfits. The financial sector makes a profit from interest rates for shouldering the risk that borrowers might not pay back their loans. Default is a cost of doing business.

By allowing lenders to garnish the Social Security checks of people living in poverty, the federal government is encouraging reckless student loans at interest rates that would be unsustainable in a free market. No sane borrower would take on a loan if paying it back would require them to live in poverty.

There is no constitutional amendment requiring the federal government to use Social Security as a subsidy for reckless bankers. As with many other 21st-century economic woes, it’s possible to trace the student debt debacle among the elderly back to the era of bipartisan cooperation between President Bill Clinton and House Speaker Newt Gingrich (R-Ga.). Prior to 1996, it was illegal for student loan creditors to garnish Social Security checks. Clinton and Gingrich changed that. Warren supports legislation introduced by Sens. Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore.) that would repeal the 1996 law.

Clinton spent much of his presidency extolling the values of higher education, insisting that the only way to get ahead in the Silicon Valley economy of the future was to “earn what you can learn.” To this way of thinking, poverty was not a function of structural imbalances in the economy that denied people a living wage, but the result of inadequate access to schooling. This ideology has been passed down through George W. Bush to Barack Obama.

“What I fundamentally believe — and what the president believes,” former Education Secretary Arne Duncan told The New York Times in 2012, “is that the only way to end poverty is through education.”

Education is great. It’s fun to learn about Plato and Chinua Achebe and Jane Austen and the Krebs cycle and lending at interest. It’s also fun to eat when you are old. And if tens of thousands of elderly Americans are living in poverty despite doing exactly what American presidents have told them to do for decades ― namely, getting an education ― then something is dreadfully wrong.

CORRECTION: A previous version of this article stated that McCaskill supports the Brown-Wyden bill. She has not declared a position on the legislation.

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