Personal Finance
House just voted yes to increase Social Security for some beneficiaries
A bipartisan bill to change Social Security benefit rules for pensioners passed in the House of Representatives on Tuesday, with 327 lawmakers voting to support the measure.
Now, the proposal heads to the Senate, where the chamber’s version of the bill has 62 co-sponsors, “surpassing the majority needed to pass the bill on the U.S. Senate floor and send it to the president’s desk to be signed into law,” Reps. Abigail Spanberger, D-Virginia, and Garret Graves, R-Louisiana, co-leaders of the bill, said in a joint statement.
The proposal — called the Social Security Fairness Act — would repeal rules that reduce Social Security benefits for individuals who receive pension benefits from state or local governments.
It would eliminate the windfall elimination provision, or WEP, that reduces Social Security benefits for individuals who worked in jobs where they did not pay Social Security payroll taxes and now receive pension or disability benefits from those employers. About 3% of all Social Security beneficiaries — about 2.1 million people — were affected by the WEP as of December 2023, according to the Congressional Research Service.
More from Personal Finance:
What Trump’s presidency could mean for the housing market
Trump’s win may put popular student loan forgiveness program at risk
What the Fed’s latest interest rate cut means for your money
The bill would also eliminate the government pension offset, or GPO, which reduces Social Security benefits for spouses, widows and widowers who also receive pension checks. As of last December, about 1% of all Social Security beneficiaries — or 745,679 individuals — were affected by the GPO, according to the Congressional Research Service.
These rules, which have been in effect for decades, reduce the incomes of certain retired police officers, teachers, firefighters and other public servants, Graves said during a Tuesday speech on the House floor.
“This has been 40 years of treating people differently, discriminating against a certain set of workers,” Graves said.
“They’re not people that are overpaid; they’re not people that are underworked,” he said.
Supporters call bill a ‘step in the right direction’
The National Committee to Preserve Social Security and Medicare said the House vote on the Social Security Fairness Act is a “step in the right direction” and a “bipartisan victory for public sector employees and their families.”
“We have long advocated for the repeal of the WEP and GPO provisions, though we would have preferred that Congress take up the more comprehensive improvements in Rep. John Larson’s Social Security 2100 Act,” Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, said in a statement.
Larson’s proposal, which has 188 House co-sponsors, would also repeal the WEP and GPO, while also implementing other temporary benefit increases. To help pay for those changes, it would require people with more than $400,000 in income to pay more Social Security payroll taxes.
On Tuesday, Larson voted against the Social Security Fairness Act, as well as another bill, the Equal Treatment of Public Servants Act. The latter bill would use a new formula for Social Security retirement and disability benefits for pensioners rather than eliminate the WEP. It would not change the GPO.
The bill, which was proposed by Rep. Jodey Arrington, R-Texas, failed when it was brought up for a vote.
“I could not vote for the bills on the floor tonight because they are not paid for and therefore put Americans’ hard-earned benefits at risk,” Larson said in a statement. “It would hurt most deeply the five million of our fellow Americans who receive below poverty checks, and almost half of all Social Security recipients who rely on their earned benefits for the majority of their income.”
Critics say the bill will weaken Social Security
The Social Security Fairness Act would add an estimated $196 billion to deficits over the next decade, the Congressional Budget Office has estimated. It would also move Social Security’s trust fund depletion dates closer by an estimated six months, according to the Committee for a Responsible Federal Budget.
“The long-term solvency of Social Security is an issue that Congress must address,” Spanberger said on the House floor on Tuesday.
“But that is a separate issue from allowing Americans who did their part, who contributed their earnings, for them to retire with dignity,” she said.
However, critics say Social Security’s funding woes should be a priority for Congress now. The program’s actuaries project the trust fund used to pay retirement benefits may be depleted in 2033, at which point 79% of benefits will be payable.
“This is not the right policy,” said Romina Boccia, director of budget and entitlement policy at the Cato Institute. “It’s what special interests were pushing, and politicians are responsive to their demands.”
Though the alternative bill proposed by Arrington would not address the GPO, it would provide a “fairer formula” for the WEP, Boccia said. However, broader changes are needed to shore up the program’s finances.
“We should reform Social Security so that it provides basic income security to the most vulnerable Americans in old age without adding to the debt or tax burden that younger workers face,” Boccia said.
franckreporter | Getty Images
Nearly 2 million federal student loan borrowers who’ve requested to be in an affordable repayment plan are stuck in a backlog of applications, waiting to be approved or denied, according to new data recently shared by the U.S. Department of Education.
The Education Department disclosed the information in a May 15 court filing in response to a legal challenge lodged by the American Federation of Teachers. The teachers’ union sued the Trump administration in March for shutting down access to income-driven repayment plan applications on the Education Department’s website.
IDR plans cap borrowers’ monthly bills at a share of their discretionary income with the aim of making their payments manageable.
More from Personal Finance:
House Republican bill calls for bigger child tax credit
Student loan borrowers in default may see 15% of Social Security benefit garnished
How college savers can manage 529 plans in a turbulent market
In late March, the Trump administration made the online applications available again, and said that it pulled the forms because it needed to make sure all repayment plans complied with a court order that blocked the Biden administration’s new IDR plan, known as SAVE, or the Saving on a Valuable Education plan.
Trump officials argued that the ruling had broader implications for other IDR plans, and it ended up removing the loan forgiveness component under some of the options.
The backlog complicates things for borrowers as the Trump administration restarts collection activity. The Education Department estimates that nearly 10 million people could be in default on their student loans within months.
Without access to an affordable repayment plan, student loan borrowers can be suspended on their timeline to loan forgiveness and at risk of falling behind and facing collection activity.
‘The opposite of government efficiency’
In the May court document, the Education Department disclosed that more than 1.98 million IDR applications remained pending as of the end of April. Only roughly 79,000 requests had been approved or denied during that month.
Consumer advocates slammed the findings.
“This filing confirms what borrowers have known for months: Their applications for loan relief have effectively been going into a void,” said Winston Berkman-Breen, legal director at the Student Borrower Protection Center.
The Center said that if the Education Department continued to move at its current rate, it would take more than two years to process the existing applications.
AFT President Randi Weingarten called the backlog “outrageous and unacceptable.”
“This is the opposite of government efficiency,” Weingarten said. “Millions of borrowers are being denied their legal right to an affordable repayment option.”
What’s behind the backlog
A spokesperson for the Education Dept. blamed the backlog on the Biden administration, saying that it “failed to process income-driven repayment applications for borrowers, artificially masking rising delinquency and default rates and promising illegal student loan forgiveness to win points with voters.”
“The Trump Administration is actively working with federal student loan servicers and hopes to clear the Biden backlog over the next few months,” they said.
The Biden administration put the student loan borrowers who’d enrolled in its new IDR plan, SAVE, into an interest-free forbearance while the GOP-led legal challenges to the program unfolded. Many of the currently pending IDR requests are likely from borrowers who are trying to leave that blocked plan to get into an available one.
Sarah Sattlemeyer, a project director at New America and senior advisor under the Biden administration, said that the current backlog began last year “and has existed across both the Biden and Trump administrations” as a result of the legal battle over the SAVE plan.
“It is a demonstration of how complicated the loan system is, how much uncertainty there has been over the last few years and what is at stake,” Sattlemeyer said. “There also isn’t clarity around how some applications in the backlog should or will be handled, such as those where a borrower chose an option that no longer exists on the application.”
In recent months, the Trump administration has terminated around half of the Education Department’s staff, including many of the people who helped assist borrowers.
That is also likely one reason why so many of the applications haven’t been processed, said higher education expert Mark Kantrowitz.
“Perhaps the reduction in staff is affecting their ability to process the forms,” Kantrowitz said.
The Trump administration’s resumption of collection efforts on defaulted federal student loans has far-reaching consequences for delinquent borrowers.
For starters, borrowers who are in default may have wages, tax returns and Social Security payments garnished.
But involuntary collections could also have a “spillover effect,” which puts consumers at risk of falling behind on other debt repayments, according to a recent report from the Federal Reserve Bank of New York,
As collection activity restarts, disposable income falls
“We were obviously somewhat concerned about potential spillovers to delinquencies on other types of debt,” the New York Fed researchers said on a press call earlier this month.
“During the period where people were not required to make payments on their student loans, they could have used that money to pay their credit card bills and auto loans,” the researchers said. “Now they have to make these payments again on their student loans, so that could put pressure on their ability to pay these other loans.”
More from Personal Finance:
Wage garnishment for defaulted student loans to begin
What loan forgiveness opportunities remain under Trump
Is college still worth it? It is for most, but not all
The U.S. Department of Education’s crack down on student loan repayments could take billions of dollars out of consumers’ pockets, reports show. Monthly collections on defaulted loans may reduce disposable personal income between $3.1 billion to $8.5 billion a month, according to research by JPMorgan.
“Part of the reason that some people are adding to credit card debt is because they have student loan payments — that’s the spillover effect,” said Ted Rossman, senior industry analyst at Bankrate. “Something’s got to give.”
‘It’s just money that can’t go to other financial things’
Until earlier this month, the Department of Education had not collected on defaulted student loans since March 2020. After the Covid pandemic-era pause on federal student loan payments expired in September 2023, the Biden administration offered borrowers another year in which they would be shielded from the impacts of missed payments. That on-ramp officially ended on Sept. 30, 2024, and the Education Department restarted collection efforts on defaulted student loans on May 5.
Whether borrowers face garnishment, or opt to resume payments to get current on their loan, that’s likely to have a significant impact on their wallet.
“It’s just money that can’t go to other financial things,” said Matt Schulz, chief credit analyst at LendingTree.
After the five-year pause ended and collections are resumed, the delinquency rate for student loan balances spiked, the New York Fed found. Nearly 8% of total student debt was reported as 90 days past due in the first quarter of 2025, compared to less than 1% in the previous quarter.
Currently, around 42 million Americans hold federal student loans and roughly 5.3 million borrowers are in default, according to the Education Department. Another 4 million borrowers are in “late-stage delinquency,” or over 90 days past due on payments.
Among borrowers who are now required to make payments — not including those who are in deferment or forbearance or are currently enrolled in school — nearly one in four student loan borrowers are behind in their payments, the New York Fed found.
As borrowers transition out of forbearance and into repayment, those borrowers may also face challenges making payments, according to a separate research note by Bank of America. “This transition will likely drive delinquencies and defaults on student loans higher and could have further knock-on effects for consumer finance companies,” Bank of America analyst Mihir Bhatia wrote to clients on May 15.
In a blog post, the New York Fed researchers noted that “it is unclear whether these penalties will spill over into payment difficulties in other credit products, but we will continue to monitor this space in the coming months.”
Misunderstandings keep families from claiming tax credits
Stocks making the biggest moves after hours: Palo Alto Networks, Take-Two Interactive and more
Senate panel grills IRS commissioner nominee Billy Long
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoCPI inflation April 2025: Rate hits 2.3%
-
Economics1 week agoTariff receipts topped $16 billion in April, a record that helped cut the budget deficit
-
Personal Finance6 days agoHouse Republicans advance Trump’s tax bill. ‘SALT’ deduction in limbo
-
Economics6 days agoViolent crime is falling rapidly across America
-
Economics1 week agoGerman business leaders tell new government: It’s time to deliver
-
Personal Finance1 week agoHow to save on groceries amid food price inflation
-
Personal Finance1 week agoFidelity technical issues kept some investors out of their accounts
-
Economics4 days agoThe low-end consumer is about to feel the pinch as Trump restarts student loan collections