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Can the Government Seize Federal Benefits To Collect Student Loans?

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Can the Government Seize Federal Benefits To Collect Student Loans?

by Lorray S.C. Brown, MPLP

When three senior citizens learned, to their surprise, that the federal government was withholding part of their sole source of income (Social Security retirement income) to repay student loan debts incurred years ago, the National Consumer Law Center (NCLC), Public Citizen Litigation Group (Public Citizen), and Oakland Livingston Legal Aid (OLLA) swung into action on their behalf. The litigation effort succeeded in clarifying the statute of limitations for the Debt Collection Improvement Act (DCIA), 31 USC � 3716.

In 1996, Congress enacted the DCIA. Unfortunately, the DCIA gives federal government agencies the authority to offset certain federal benefits to collect debts (such as student loans) owed to the government. The statute authorizes offset of: (1) Social Security Retirement and Disability Benefits; (2) Railroad Retirement Benefits (other than those determined to be tier 2 benefits); and (3) Black Lung Part B Benefits. 31 USC � 3716(c)(3). Supplemental Security Income (SSI) payments are specifically exempted. 31 CFR � 285.4(b). The Debt Collection Improvement Act specifically prohibits offset for claims that have been outstanding for more than ten years. 31 USC � 3716(e)(1).

In December 2001, on behalf of these three senior citizens, NCLC, Public Citizen, and OLLA filed a lawsuit in the Eastern District of Michigan (Southern Division) challenging the federal government's right to offset the senior citizens' Social Security benefits to collect old student loans owed to the government. See Guillermety v. United States Secretary of Educ. & United States Secretary of Treasury, Case No. 01-74904 (9/27/02). The issue - one of first impression - was whether the Secretary of Treasury may offset a recipient's Social Security benefits to collect student loans owed to the United States which have been outstanding for more than ten years. The government argued that the Higher Education Act (HEA), 20 USC � 1091a, eliminated the statute of limitations with respect to student loans and thereby extended the government's authority to offset Social Security benefits to collect loans more than ten years. Fortunately, the district court judge (J. Borman) disagreed with the government and held that HEA did not override the ten-year statute of limitations provided by the Debt Collection Improvement Act.

Another question the judge decided was, under the DCIA, when does the statute of limitations begin to run. Plaintiffs argued that the time period begins to run from the time the debt is incurred. The government argued that the time should run from the time the reinsurance claim is made or the loan is assigned to the Department of Education. Judge Borman however concluded that the ten-year statute of limitations begins to run when the government's right to collect first accrues. The government's right to collect first accrues on either: (1) the date in which the government paid its reinsurance obligation; or (2) the date in which the outstanding loan is assigned to the Department of Education. The court granted summary judgment only to the one senior citizen whose loan was older than ten years under this criterion.

The Guillermety decision is a mixed bag for our clients with old student loans. On the one hand, the government cannot offset our client's Social Security benefits to collect student loans older than ten years. However, the criterion set to determine when the ten years begin to run may not be helpful to our clients. According to NCLC, many holders of federal student loans do not readily assign the loans to the federal government upon default. Apparently, the holders of the loans wait many years before assigning the defaulted loans to the government. See NCLC Student Loan Law Manual (2nd Ed.) � 5.4.3.3.2. Consequently, although a client may have defaulted on a loan thirteen years ago, the government may still be able to collect on that loan if the loan was recently assigned to the government (for example, two years ago).

Advocates who cannot successfully challenge the Social Security offsets based on the ten-year statute of limitations should consider other ways to cancel a client's loan, such as filing a disability discharge on the client's behalf. Additionally, advocates should consider other cancellation options such as closed school, false certification, and unpaid refund. Each of these options is discussed in detail in NCLC's Student Loan Law manual.