TED JENKIN: With our national debt topping $17.5 trillion and growing, is it any wonder where the government will strike next to begin collecting more and more revenue. With tons of people behind payments on their student loans, there is a new phenomenon that people collecting Social Security need to be on guard for...that your Social Security check can be garnished.  Yes, that right, you can actually have some of your fixed income in retirement taken away from you.

With more people going back to get a midlife college degree and more parents and grandparents co-signing loans, once your name gets on the dotted line for a federal loan you will be responsible to pay it back one way or another. Back in 2000, only six people were being garnished for delinquent loans; now that number has risen to over 156,000 people. According to some reports, the total garnishments exceeded more than $150 million last year.

What can you do if this happens to you?

  • You'll have a 180-day advance notice.  Make sure you request a review within 20 days.
  • You should contact the Department of Education and see if you can get your loan out of default.  If you can, immediately apply for an income-based repayment plan.  Those living on a fixed income will get their payment down to virtually zero.
  • Apply for a hardship exemption.  There is a ton of paperwork, but you might be able to use this to stop the garnishment.

If you are wondering whether or not Social Security can be 100% garnished from you, there is some silver lining.  There is a floor of $750, which means they government can take 15% of your Social Security (after Medicare deductions), but it cannot push through that $750 limit. However, that can still mean a huge bite out of the wallet of someone living completely on a fixed income from Social Security.

Moral of the story?  You may love your children and grandchildren, but be very cautious before you agree to sign on the dotted line. It just may cost you a piece of your Social Security.

Ted Jenkin (@tedjenkin) is the co-CEO and founder of oXYGen Financial, a financial advisory firm focused on the X amp; Y generations. He also blogs at yoursmartmoneymoves.com.

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