Indentured Servitude for Seniors: Social Security Garnished for Student Debts

The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.  

– President Jimmy Carter, December 20, 1977.

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

– President Ronald Reagan, April 20, 1983

So said Presidents Carter and Regan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008.

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents . . . .  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect.

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost.  Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion — or $300 billion or $3 trillion — in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy.

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Programme (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year.

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly-owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

23 Responses

  1. Fantastic post. I agree with you completely on this. We have set up a predatory plutocratic oligarchy based on government(graft)-created private fiat-credit monopoly called the “Federal Reserve” (our coinage says “Federal Reserve Note”)

    …and this predatory banking monopoly is sucking the life blood of humanity.

    I fear however, that the “government solution” too is highly corruptible. If we hand over the power to create fiat credit to the government, who is to say they won’t use it to enrich themselves and their cronies? Wouldn’t this simply shift the money printing from one institution to another without changing the structure we have now?

    Ultimately, we need honest government to fix the problem. But honest government requires an active, informed, knowledgeable society..and let’s face it, America has become the land of morons.

    If American were smart enough and cared enough to do something about these types of things, they would elect legislators that would pass laws preventing this type of predatory usury. We could STILL keep the Fed and keep the banksters in check.

    Again, my point is that changing the system does not change the people or the politicians. Changing the people and the politicians however, can change the system.

    From a pure policy standpoint however, perhaps the “balance of powers” approach WOULD be best. The government could set up not-for-profit institutions to compete with what have become monopolies.

    Health care and banking could turn into government utilities.

  2. Thanks for highlighting this issue. Individual states are also seizeing SS funds for past child support payments (http://www.angrybearblog.com/2012/02/les-miserables-social-security.html) long after the children are grown and self supporting. The states claim that they were forced to step in and subsidise essentials for minor children in the past and now they are taking what is owed.

    The states don’t stop at 15%. In some cases they are taking up to 100% of the SS payments of men who are now sick, disabled and have no other means of support.

    Not paying child support does cause harm to dependent children. Some men have the money to pay, but duck and dodge their responsibilities. Some are simply selfish and mean-spirited.

    Yet, life is full of extenuating circumstances. Some of these men never had steady work, some were imprisoned for long periods, and some faced financial meltdowns over the course of their working lives.

    No matter the cause of child support non-payment, going after seniors for funds long after the children are grown is criminal.

  3. Does anyone know what the Romans did to try and stop from going belly up ? Aside from moving to Istanbul….which was Constantinople ..when there was no other way out of their mess…their bankruptcy.
    Is that why our banks have moved some of our stuff to China …?

  4. Thank you, Ellen.

    I’m running this at my blog.

  5. New French Socialist President Seeks to Unite with BRIC and End the Dollar

    http://www.citypress.co.za/Business/News/Brics-move-to-unseat-US-dollar-as-trade-currency-20120324

  6. Why help students who are trying to build a life…the Banks are a black hole but, they have each Congressman’s Johnson in their hand as well as the cash!

  7. […] to recognize our oppressors and throw off their yoke, and the good times can roll again.Ellen Brown Web of DebtPosted: Friday, 12 May […]

  8. This was done earlier this year for campaign reasons. Notice that it is government that wants to starve other for political purposes.

    And it was government who is the cause the the financial crises. The point of fannie mae and freddie mac was to expand the money supply, causing a boom, and generating a lot of tax revenue. In other words, it was all about spending and growing government.

    This is just another reason to return to sound money and commodity money.

  9. “Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. ” – this is incorrect. It is limited by the amount of gold or silver minted and in circulation.

    “It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks.” – assuming that the checks were backed by 100% gold coins, then the gold would leave the vaults and the checks were cleared at banks and people could take possession of them. Of course this would be extremely inflationary for the dollar as people would be forced to dump the dollar in order to buy things in gold. And presumably taxes would have to be paid in gold or silver coins which would imp overage a lot of people who do not have access to them unless income, wealth, and investment taxes were repealed or these coins were considered legal tender.

    “ut wouldn’t that be inflationary? No. The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices. ” – it would be inflationary are people would dump the dollar for coins. It would concentrate wealth in the hands of the few as the bankers and foreign governments who would be the only ones who would have access to gold since they hold so much treasury debt unless of course this debt was defaulted upon by not paying or by printing the money.

    “Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.” – China and a lot of other countries are creating their currency in order to buy our currency or selling their resources in order in US dollars, which allows them to buy more such things in dollars, thus causing inflating prices. However, monetary inflation is not occurring since people in mass are not borrowing money. The money created is sitting in banking reserves waiting to be lent.

    “Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.” – yeas because people are not borrowing money and spending it. Creating money out of thin air causing a boom in the economy but it must be paid back thus causing a bust when money comes out of the eocnomy.

    “Congress could re-finance the federal debt through the Federal Reserve, interest-free. ” – uh, the federal reserve already holds treasuries and passes the interest back to the treasury. In essence the treasury is paying interest on debt held at the federal reserve who pass the interest back to the treasury. Refinancing does not do a thing. This debt held at the federal reserve can be dissolved which would reduce the debt.

    “Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care. “- no, Canada has been inflating their money supply too. It is all artificial.

    “The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest. ” the Fed does not borrow from the fed. It issues or sells Iou’s directly or through its primary dealers. The Fed buys and sells these debt obligations in the open market commutes from banks.

    “The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not. But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.” – this is not correct and is not how money is inflated. Money is not inflated by the fed but buy the Fraction reserve banking system.

    Enough of this. I think you need to do some research as you really do not know what your talking about.

    • The best way to a gold/silver coinage standard would be to allow for competing currencies. BUt people should be able to decide what they get paid in wether it be gold, silver, dollars, oil, or what ever else they can decide upon. Of course this would be the end of the income tax, capital gains tax, and employment laws..

  10. my suggestion to all young people is to begin producing goods & services before taking on a dollar of debt. do this for 2 or 3 years and save your money. once you have worked a few thousand hours & acquired capital you will be more likely to avoid loans altogether.

    also remember that universities are money making systems. they provide for many beneficiaries few of whom are the actual customers (aka students). this is because the payer is in large part a 3rd party (The State) therefore leaving the service provider with little incentive to make their customer happy.

  11. This is the biggest well-kept and well-funded secret that nobody talks about, and almost nobody in the corporate-bought media discusses.

    Does Congress know that it is given the power by the Constitution to coin money and regulate its value, and that there is no limit established on the face amount of the coins it creates?

    Does Congress know that it could re-finance the federal debt through the Federal Reserve, interest-free, and that Canada, by having done this from 1939 to 1974, kept its national debt low and sustainable while funding huge programs including seaways, roadways, pensions, and national health care??? These are all things that we also want and need to do.

    I believe that Congress knows we can do this, but it doesn’t serve their greedy interests, and they are purposely NOT doing this. They are paid NOT TO DO THIS, so they can be subsidized by the lobbyists who work for the 1%. The 1% wants the for-profit banks to keep us in debt and serfdom through Friedman economics and their bank-bought legislators. They want the plutonomy to continue for them, due to their bottomless avarice, and they want the rest of us to serve them, and die off serving them.

    We need money, as Ellen has pointed out, to be created by public institutions for the people, the 99%, either by issuing it directly, or through the creation of public banks.

    We know who our predatory oppressors are, and how they are sucking the lifeblood out of our economy. In fact, it seems to be a global phenomenon, in all likelihood with the .01% behind it.

    It seems to me that we need to keep spreading the word about the wonders that public banking can do for our communities.

    • +We need money, as Ellen has pointed out, to be created by public institutions for the people, the 99%, either by issuing it directly, or through the creation of public banks” – no, public institutions cannot create money. They can only debase it. Money is created through wealth creation (liberty that brings innovation and creativity to the markets). It is not created from the top down but rather from the ground up. Money is nothing more than a medium of exchange that buyers and sellers trade with. And many governments standardized money for control and taxes which benefits their friends, allies, and businesses. It is all for political purposes.

      This is the point of the financial services. The financial crises was created because government cannot afford its self. it cannot afford to pay for infrastructure and social spending. This is why there is so much debt. The federal government has been issue IOUs while loosening loan standards so that more money is created which creates an artificial boom and a lot of new tax revenue for a while and unlit it catches up to them. Then, they debase it some more ino0rder to keep the collapse from happening. However, people are not borrowing money which means they cannot keep debasing the currency under stealth. It is all a card game,

      In the past and across civilizations including the Romans, , Infrastructure projects were originally created by private companies, merchants, and traders for profit. Why? because without debasing the currency nor plunder, the government cannot afford it.

  12. […] Indentured Servitude for Seniors: Social Security Garnished for Student Debts May 12, 2012 / ok / No comments Posted on May 11, 2012 by Ellen Brown | Web of Debt […]

  13. […] Web of Debt This entry was posted in Blog Posts by admin. Bookmark the […]

  14. Don’t get a student loan. Get a credit card and use it instead.

  15. […] […]

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  17. […] This piece originally appeared at Web of Debt. […]

  18. Reblogged this on John Malcolm.

  19. […] This piece originally appeared at Web of Debt. […]

  20. […] “Indentured Servitude for Seniors: Social Security Garnished for Student Debts” […]

  21. […] http://webofdebt.wordpress.com/2012/05/11/indentured-servitude-for-seniors-social-security-garnished… […]

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