In the event of a federal student loan borrower’s default on a federal student loan, the Department of Education has the power to offset federal benefits owed to the borrower including from social security. The offset continues until the defaulted loan is paid in full or taken out of default.
There are applicable exemptions – the Department of Education cannot take any amounts due to the borrower below $9,000 per year or $750 per month and no more than 15% of the total benefit can be offset.
Supplemental Security Income (SSI) is fully exempt and cannot be taken.
Before the offset begins, a notice of pending offset will be sent to the borrower’s last known address to notify that the offset is scheduled to begin in 65-days. The notice may only be sent once, and offsets will continue until the debt is paid.
If Social Security disability benefits are being withheld, the withholding of those benefits will be suspended if the Social Security Administration (SSA) makes a determination that the borrower is totally disabled, with medical improvement not expected. However, if the SSA later converts the disability benefits to retirement benefits, the withholding of the Social Security benefits may resume without notice.
The offset process is managed by the Bureau of the Fiscal Service of the Department of Treasury. Before referring a debt to FMS for collection, the Department of Education must provide the borrower with notice.
The borrower may request a review within 20-days of receiving the notice of offset or if the borrower requested documents to review, within 15-days after those documents are received. The borrower has the right to first review and copy relevant documents.
The borrower may also request an oral hearing instead of a written review but must send an explanation of why a written review is inadequate.
A defaulted borrower may also request a reduction or suspension of an offset due to a hardship. It is up to the Department of Education’s discretion whether to grant this such a reduction or suspension.
To consider such a request, the Department of Education requires that the following documents be submitted:
- The notification of offset;
- The notification letter showing the amount of federal benefit;
- Proof of yearly income;
- A completed financial statement that must be returned to the Department of Education or guaranty agency within ten days. If the situation is an emergency, the borrower may submit equivalent information such as an eviction notice or a court order of foreclosure in writing with the completed financial statement.
- A letter explaining the exceptional circumstances that caused the financial hardship along with any other supporting documents.