THE ISSUE:
According to current tax law, Social Security and retirement savings can be garnished to satisfy the taxes unfairly presumed to be owed for “forgiven” student loan debts. The current scheme treats the predatorily-inflated amounts ‘forgiven’—after 25 years of loan payments—as actual income received by the debtor!

EXAMPLE:
· Jane borrowed $50,000 to complete her B.A. & M.A. degrees, she graduated in 1999, at age 39.

· On graduation Jane consolidated her loans (rate of 7.625%) to make them more manageable.

· Now Jane is 52. As the result of compounded and capitalized interest over the last 12 years, her loan balance is now $104,000!

· Jane has never defaulted, has made payments, and utilized unemployment deferments only when absolutely necessary.

· Jane qualifies for the new IBR plan (Income Based Repayment) for Federal loans.

· IBR allows Jane to make monthly payments of up to 15% of her income for the next 25 years. At the end of that term the remaining balance will be “forgiven”—theoretically.

Sounds great doesn't it? But there's a problem and this is what it looks like:

· It's now 2037. Jane is 77 years old. Jane has made all her payments under the IBR plan for 25 years.

· Jane has paid $300 a month for a total of $90,000 in payments—nearly twice what she borrowed.

· During these 25 years, Jane’s balance has grown to $652,923, $548,923 of which is interest!

· Subtract the $90,000 Jane paid from the total of $652,923. This leaves a balance of $562,932 to be “forgiven”…Or is it?

· Under current tax law, the amount of "forgiven" student loan debt becomes TAXABLE INCOME. Now, rather than owing the student loan lender, Jane owes the IRS—for income she never actually received.

· Assume a conservative tax rate of 15% on that "forgiven" amount of $562,932. For the actual “income” Jane was originally loaned—$50,000—not the nearly $600,000 considered “forgiven”—Jane is now left owing the IRS $84,440!

· Jane began drawing on her Social Security benefits at age 67. The IRS now takes 15% of each Social Security payment, as tax payment for $562,932 of income that Jane NEVER actually received!

· Because of student loan debt, for the past 38 years, Jane has been unable to save for retirement. But had Jane been able to save, the IRS could also garnish Jane’s retirement savings.

BACKGROUND:
As this example illustrates, Student Loans, both Federal and Private, compound and capitalize the interest. As interest is added to the principle and then charged interest again and again, the student loan balances grows exponentially.

In any other industry, this type of predatory lending is statutorily prohibited as usury. Yet, student loan lenders (the largest of which is the US government, under Sallie Mae) have bought the right to these usurious practices, and seniors are paying for it. Congress eliminated bankruptcy protections for federally-guaranteed student loans in 1988, and the job was complete in 2005, when Congress removed consumer protections for private student loans as well.

Not only is the lending predatory, but the consumer protections afforded to nearly every other type of debt are nonexistent for student loans. Student loans are not dischargeable in bankruptcy. The hypothetical Jane could use credit cards to live extravagantly or gamble, and those debts could be discharged in bankruptcy

The only other class of individuals treated this viciously under our legal system are murderers, against whom their victim’s families have won a wrongful death suit, i.e., OJ Simpson. Even then, these individuals are often protected by state laws that exclude retirement funds from garnishment! But, if she’d been able to save for retirement, Jane’s retirement funds would not be protected against student loan lenders, much less the IRS. Think about this—a convicted murderer can have a retirement fund safe from garnishment, but a hard-working US citizen can have even their retirement garnished to satisfy a debt for which they have paid many times over!

This is an age issue that impacts the lives of many aging Americans today. Even those who only co-signed to help someone obtain a student loan are victims of Social Security and retirement fund garnishment! This predatory system will effect more and more seniors in the future. For most who took on Student Loan Debt believing higher education would improve their lives, the harsh reality is that these loans will never be paid off, and instead of improving their lives, borrowers have become lifelong slaves to this debt—the exact reason such predatory, usurious lending is illegal in every other industry!

To collect Social Security, one must pay into it. Thus, Social Security payments are earned—paid for in advance! Meaning, those receiving Social Security payments are not deadbeats—they are hard working Americans. It seems this is yet another way lawmakers have chosen to dip into our pockets and take away what little we now have, our Social Security.

WE ARE ASKING THAT AARP:
· Recognize the predatory nature of student loans and the life-long bondage it creates.
· Spotlight, using AARP’s vast media connections, the devastating effects student loans are having on seniors.
· Advocate for current and future seniors.
· Lobby for change and support legislation to amend the tax code and put an end to garnishment of Social Security and Retirement Savings for those who have worked so hard.

IN CLOSING:
Due to increasing college costs, the next generation of seniors will have more student loan debt than current seniors. If this does not change they will likely have little use for an organization such as the AARP. They will not be looking for travel or investment tips, they will be concerned with paying rent and buying groceries. And the ongoing battle over cuts to Social Security may have little meaning to those who know their Social Security will be garnished.

Given the current economy and ever increasing student loan debt (which, now at more than $1-trillion has outpaced credit card debt), AARP could well become an annex of the 1% club as those 1%-er's will be the only people who will have use for AARP.

We strongly urge the AARP to go to bat and be the advocate they have claimed to be in this very real threat to Social Security and retirement funds—the most basic security we have as aging Americans.