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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Wednesday, December 07, 2005

Supreme Court Decision: Social Security Benefits Are Fair Game

Student Loan Debt Horror Story Years ago, when the government emptied my bank account in order to satisfy a portion of the student loan debt that I wasn’t repaying, I was floored. I could not believe that the government had the power to take away all my money in such a manner. It was a wakeup call that I won’t ever forget, and it was, quite frankly, one that I really needed.

From this day forward, many retired and disabled folks who receive Social Security (SS) benefits, and who’ve made the mistake of disregarding their student loan debts, may experience the same shock and horror that I went through when they get their next SS check.
Today, the Supreme Court ruled against Mr. James Lockhart, the 67-year-old retired postal worker who’s SS check had been cut by 15% in order to make payments towards his 20-year-old student loan debt.
Lockhart’s case was controversial in 3 dimensions:
  1. Lockhart defaulted on his student loan debt 20 years ago, which means that his SS benefits should have been protected by the Debt Collection Act of 1982.
  2. The Social Security Act stipulates that SS benefits should not be "subject to execution, levy, attachment, garnishment, or other legal process."
  3. Lockhart claimed that he needed every penny of his monthly social security check ($874) to pay for food and the medicines he needs to treat his diabetes and heart disease. James Lockhart lives in public housing.
Today’s Supreme Court ruling sorts out 2 conflicting rulings made by 2 lower courts regarding Lockhart’s case and another similar case.
The 9th US Circuit Court of Appeals had ruled against Mr. Lockhart because The Court felt that the Higher Education Act gives the government every right to take a cut of Lockhart's SS benefits.

However, the 8th Circuit Court made a contradictory ruling in a case that was separate from, yet very similar to, the Lockhart case. The case involved Ms. Dee Ella, a Kansas City, Missouri woman who defaulted on her student loan debt 20 years ago; the 8th Circuit Court decided that the Social Security Act and the Debt Collection Act should protect Ms. Ella from having her SS benefits offset by the government.

So, basically, the job of the Supreme Court was to decide which Act of Congress should trump the other: The Higher Education Act (or, to be more precise, the Higher Education Technical Amendments) won out.
So now it doesn’t matter how poor or disabled your are, it doesn’t matter if you need every penny of your SS check to pay for life-preserving medicines and food, and it doesn’t matter if you defaulted on your student loan debt 30 or even 50 years ago: the government can--and most likely will--offset your SS benefits if you default on your federally subsidized student loans.

Your comments are welcome and appreciated.

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Anonymous blunt said...

The case against James Lockhart pulls me in two different directions. First, the governemnt should be held to the same standards that every other business in the country is held to. That is, is someone defaults on a loan, you go to court AT THAT TIME, not twenty years later.

But I also feel that, while it is commendable that Mr. Lockhart went into debt for a noble reason - educating himself - the truth is, Americans as a whole need to take more responsibility for incurring debt. If you need to work a second job to pay off a debt, then work a second job for a couple of years, and get it done.

The United States government is funded by taxpayers, guys like me. Someone loans money from me, I don't really want excuses as to why they can't work extra hard to pay me off. I did them a favor in the first place, they should be willing to pay it back over time - and Lockhart had 20 years to o so.

Friday, December 09, 2005 11:50:00 AM  
Anonymous Zack said...

I'm curious to know when you sign to get a student loan are you signing away some of your rights because It has to be unconsitutional to garnish your wages without a court hearing. I have 3000 dollar student loan that i am in default on and it scares me badly that i can't pay it.

Tuesday, December 13, 2005 5:21:00 AM  
Anonymous Anonymous said...

While I am sensitive to the argument that the government had 20 years to chase this debt and didn't, I am also not sympathetic to Mr. Lockhart, who failed to make payments for 20 years. I haven't looked for the opinion, but I wonder why he stopped paying: was it because he ran into health problems, or just that he thought he could get away with it?

In any event, even if he did run into health problems or something which substantially cramped his ability to make the monthly payments, in my experience the government is pretty good about giving you some leeway. When you can't pay your taxes when you file, you can a reasonable time extension and/or a payment plan. If you find yourself in substantial hardship, you can ask the government to back off of your student loan repayments for a while. Like I say, I don't know why Mr. Lockhart didn't make the effort to ask for some help instead of just defaulting.

Zach, you too: if you have a good reason you can't make a monthly payment toward your student loan debt, don't just ignore the debt. Contact your lender and ask to work out an acceptable payment schedule.

Thursday, December 15, 2005 5:48:00 PM  
Anonymous Mamacita said...

I'm sorry, but I just can not imagine NOT paying a debt. I think sometimes that when it comes to money, people get it and forget where it came from. They've got it now so they spend it, and when the lender asks for it back, people are amazed. It took me over twenty years to repay my student loans, but I did it, paying a small sum every month. I would be ashamed NOT to pay a debt.

Now we are helping our daughter repay HER student loans. And we will continue to sacrifice until it is paid. When a person borrows money, that person signs a contract and that contract is a promise and people who do not honor their promises are not good people.

Saturday, December 17, 2005 11:44:00 AM  
Anonymous Anonymous said...

The government NEVER looks at all the facts, some people are disabled and cannot pay loans back. Their health only continues to decrease causing additional harms, that adds to their hardship. Laws should be held up according to the time of occurrence, not 20 years after the fact.

Friday, April 29, 2011 8:18:00 PM  
Anonymous Anonymous said...

If obama wants the "most educated workforce by 2020"-it won't matter a hill of beans if all we have are citizens in debt.

There should be outrage in the streets! Please write your representatives and ask them to vote For S 1102 and HR 2028 to restore fairness in student lending making private loans dischargable in bankruptcy-just like any other consumer debt.

Yes, we all want to pay our bills, sometimes we just can't and there should be recourse on ALL consumer debt.

The government has contributed to the student loan debt in the same way they loaned money in the subprime mortgage disgrace.
Zero or low interest loans (while in college) and balloon 6.8% and more if a private loan -up to 18% due after 6 months. There is almost 10% unemployment and the cost of tuition has increased by 3000% in twenty years. The government contributed to this increase offering colleges "free money" under the guise of education for all! Putting this $100,000 debt on the backs of 18 year olds. I don't know about you but if I didn't put my house up as collertal, no way would I get a loan for $100,000!!!
Next, the government took over the student loan lending and bailed out Sallie and Freddie and freed the lenders of their responsiblilty in the whole mess. Next, the government bailed out the banks.
Mind you, they loaned money to each in the same way they do to students. IT DOESN"T WORK!! Student debt surpasses credit card debt now. Why? The government needs to take some of the responsiblity too. Cap interst at 0-1% on student loans. Period. You want an educated society? Cap tution at colleges relative to the degree being earned. Restore the statue of limitation on these loans and allow them to be discharged in bankruptcy if that measure must be taken.
Doing so pumps money into the economy, people will be able to buy a home, pay property tax, buy consumer goods and not be afraid to open up a small business/. Good Grief. It goes further than "being responsible for your debt" -the government too must be responsible in its lending practices/ You want the economy to start ticking? Bail out the students and give them a fresh start to show how our young people can make this economy tick again. They need empowerment and relief. Good people are shackled with a life time of debt for a purchase of education that is as old and obsolete as a black and white TV. To add insult to injury-the government overules The Social Security Act and offsets benefits if this type of loan is outstanding. Good grief, help our young people and stop wasting time figuring out ways to trip them up!

Saturday, July 09, 2011 3:00:00 PM  

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