Clinton: Student Loans, Bankruptcy Reform and Social Security Garnishment

In 1978 Congress passed a bankruptcy reform bill that limited borrowers' ability to relieve their federal student loan obligations. Over time, lawmakers tightened the rules to make it even tougher.

According to the Alliance for Retired Americans, prior to 1996, it was illegal to garnish Social Security (old age and disability) payments to pay debts. But that year under the "moderate" Democrat Bill Clinton, Congress passed a law which stripped those protections for debts owed to the federal government — and 86% of student debt is owed to the government.

That same year the New York Times reported that Bill Clinton acknowledged that mounting legal bills for he and his wife in the Whitewater investigation (and a civil suit accusing the president of sexual harassment) were outstripping his income and assets — and that a new report showing he and his wife were approaching personal bankruptcy "is probably right." (In 2014 Hillary Clinton told ABC’s Diane Sawyer: "We came out of the White House, not only dead broke, but in debt.")

In 2001, during Hillary Clinton’s first year in the Senate, she worked with Republicans on bankruptcy reform and was one of 36 Democrats who helped it pass the Senate. It was vigorously opposed by consumer groups and labor unions — and so ultimately did not become law.

Bill Moyers released a "vintage" clip of Senator Elizabeth Warren from 2004 (posted here at YouTube) when Professor Warren talks about a meeting she had with then First Lady Hillary Clinton on the subject of bankruptcy legislation that was sought by banks and credit card companies, which wanted to make it harder for consumers to use the bankruptcy laws to walk away from their debts.

Later when the bill came up again in 2005, Senator Hillary Clinton missed the vote. She did vote against a procedural motion involving the bill and said that had she been present, she would have voted against the bill itself. Slate:

During the Bush administration major private lenders claimed they needed Congress to stop their customers from filing opportunistic bankruptcies. Despite the notable lack of evidence that this was actually happening, lawmakers listened, and inserted a clause into the 2005 bankruptcy reform bill making private student loans non-dischargeable unless someone could demonstrate they posed an "undue burden" on their finances — a vague standard which the courts have subsequently interpreted as an incredibly high bar.

From the International Business Times, regarding VP Joe Biden when he backed bills to make it harder for Americans to reduce their student debt and file for bankruptcy:

As a senator from Delaware — a corporate tax haven where the financial industry is one of the state’s largest employers — Biden [and Hillary Clinton] was one of the key proponents of the 2005 legislation that is now bearing down on students ... That bill effectively prevents the $150 billion worth of private student debt from being discharged, rescheduled or renegotiated as other debt can be in bankruptcy court.

During a Democratic debate in August 2007, then-Senator Hillary Clinton said that she “fought the banks” on bankruptcy overhaul. She made the statement as part of her defense for taking campaign contributions from lobbyists and special interests.

Most debt collectors can’t take your Social Security (or VA benefits) directly out of your bank account. When a collector sues you for the debt and wins a judgment, it can ask your bank or credit union to turn over money from your account. This is called a garnishment. Banks must automatically protect 2-month's worth of Social Security and VA benefits from garnishment if they are direct deposited into your account. (There are some exceptions to this rule, which are explained here)

Despite the rule, Social Security disability and SSI money is sometimes illegally garnished or levied from bank accounts. Banks used to be allowed to comply with court orders for garnishment without checking the source of the income. However, a new federal law passed in 2011 requires banks to review accounts before garnishing money to see if Social Security funds have been deposited.

Exceptions: Social Security and Social Security Disability Insurance (SSDI) and VA benefits can be garnished to pay government debts such as back taxes or federal student loans, and debts for child or spousal support — as well as non-tax debt owed to other federal agencies, defaulted federal home loans and certain civil penalties.

Via the Federal Payment Levy Program, Social Security benefits are subject to a 15 percent levy to pay delinquent taxes. Unlike non-tax debts to other agencies, for which the first $750 of your monthly benefits are off-limits to garnishment, the IRS can take its 15 percent cut, regardless of how little money you're left with. Once the IRS has sent its final notice of an intent to levy, you have 30 days to make payment arrangements before the agency starts docking your monthly benefits.

If you owe money on a student loan, it doesn't matter how long ago you were in school. A 2005 U.S. Supreme Court case (Lockhart v. U.S.) determined there is no statute of limitations on Social Security offsets to repay student loans. The government can shave off up to 15 percent, provided your remaining monthly benefit doesn't drop lower than $750.

A new petition to end the garnishment of Social Security benefits for unpaid student loans is being sponsored by the AFL-CIO, the Alliance for Retired Americans (and many other organizations) and says:

Today, over 700,000 people relying on Social Security are still paying their student loans. Over 160,000 Social Security beneficiaries have their monthly checks garnished to pay off federal student loans.

Now in 2015, the "moderate" Hillary Clinton has a plan for student debt — but only AFTER "progressive" Senators Bernie Sanders and Elizabeth Warren had already rolled out their own plans.