School Loans May Bite Into Social Security

The government can seize part of a person’s monthly Social Security benefit to pay off old student loans, the Supreme Court ruled Wednesday.

The 9-0 ruling gives the government another way of collecting on more than $7 billion in delinquent student loans, many of which have gone unpaid for 10 years or more. It could cost retirees as much as 15% of their monthly benefit.

Generally, Social Security benefits had been shielded from seizure. But Congress revised the law in 1996 to allow specifically for the collection of unpaid student loans, the justices said.

This “provides exactly the sort of express reference” that courts must honor, said Justice Sandra Day O’Connor in what figures to be one of her last opinions.

The ruling may come as bad news for many baby boomers who are near retirement age. The government has guaranteed billions of dollars in bank loans to college students, and the government assumes this debt if the former students default. Lawmakers have made clear those debts should not be forgiven because former students are disabled or retired.

In 2003, the government estimated it had recouped about $400 million a year by seizing Social Security benefits of debtors.

The court was ruling in the case of James Lockhart, who attended four institutions of higher education from 1984 to 1989 and took out nine federally guaranteed loans. By 2002, he was disabled from diabetes and heart disease, and had $80,000 in unpaid student loans.

As a disabled person, Lockhart received a Social Security benefit, but the government withheld $93 per month to repay his student loans. His monthly benefit grew in 2003 when he reached retirement age, but the government then began withholding $143 per month.

Lockhart sued three years ago to block the seizure of his benefits, but he lost before a federal judge in Seattle and the U.S. 9th Circuit Court of Appeals. Its judges pointed to the Higher Education Act that authorized the government to seize benefits to pay old student debts.

Separately, a U.S. appeals court in St. Louis came to the opposite conclusion and pointed to a law that set a 10-year limit on the government’s collecting of old debts.

The Supreme Court took up the case of Lockhart vs. U.S. to resolve the dispute and affirmed the decision of the 9th Circuit. The justices concluded that the amended Higher Education Act had repealed the 10-year limit.

Meanwhile, new Chief Justice John G. Roberts Jr. handed down his first opinion for the high court -- and by tradition, it came in a unanimous decision in a case of no great consequence.

The law permits defendants who have been sued to try to move their case from a federal court to a state court, or vice versa. Generally, these defendants need not pay the lawyer’s fees of the other side if they lose their bid to move the case, the court said in Martin vs. Franklin Capital Corp.

Fees should be awarded only when the litigant “lacked an objectively reasonable basis” for moving the case, Roberts said.