The debt ceiling deal reached on Saturday between President Joe Biden and House Speaker Kevin McCarthy (R-CA)—if it passes the House and Senate—means Social Security checks probably be delayed, but it would definitely spell the end of the years-long pause on repayment of federal student loans.
“The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing,” President Biden said in a statement released by the White House on Saturday announcing the deal.
White House and Republican negotiators reached the tentative deal late Saturday to raise the U.S. debt ceiling and avert a default that likely be catastrophic to the global economy. Biden and McCarthy, who sealed the agreement during a 90-minute phone call Saturday, are now tasked with shoring up enough support to push the bill, called The Fiscal Responsibility Act of 2023, over the finish line in the House and Senate.
The bill includes a two-year appropriations agreement that keeps non-defense spending roughly flat with current levels, would claw back some pandemic aid and IRS tax enforcement funding, and toughen work requirements for safety-net programs, among other things. It also suspends the debt limit through January 2025—after the next presidential election.
The road to final passage continues Tuesday with the House Rules Committee set to meet at 3 p.m. EDT Tuesday to set the parameters of the debate, with the full House expected to vote on the measure Wednesday night. If passed, it would go to the Senate, where it would need to pass by June 5, according to Treasury Secretary Janet Yellen, to avoid a historic default that would send borrowing costs soaring.
Social Security impact
“This Congress needs prove that it can govern. It needs to take this most basic step and lift the debt ceiling,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told 401(k) Specialist Tuesday.
As far as Social Security checks go, Johnson said she doesn’t think they will be delayed on June 1-5, but added, “If Congress were to fail to pass the agreement by June 5, and there’s a default, then I’m much more uncertain about payment dates. Remember, employers are still required by law to submit their payroll tax withholdings regardless of what’s going on with the debt limit.
“I suspect that Social Security money will be OK for the most part in June,” Johnson continued. “Those checks are for May benefits. But I simply don’t know what to tell you because our nation has never before defaulted.”
The first batch of the month’s Social Security payments to beneficiaries are scheduled to be sent out on June 2. That batch goes mainly go to many of the oldest and most vulnerable of the roughly 66 million retirees, disabled workers and others collecting Social Security benefits.
Payments to more recent enrollees are set to go out on June 14, June 21 and June 28, depending on the day of the month one was born. The amounts are about $25 billion each week.
But if the debt ceiling deal is not passed by June 5, those checks could be delayed.
Nearly two-thirds of beneficiaries rely on Social Security for at least half of their income, and for 40% of recipients, the payments comprise at least 90% of their monthly income, according to the National Committee to Preserve Social Security and Medicare. The average Social Security benefit is $1,827 a month in 2023.
In a late April speech in Sacramento, Calif., Yellen said “a default on our debt would produce an economic and financial catastrophe,” and that “it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Deal ends pause on federal student loan payments
If passed, The Fiscal Responsibility Act of 2023 would force the resumption of federal student loan payments that has been paused since the start of the coronavirus pandemic. The agreement would terminate the ongoing pause on monthly payments and interest after Aug. 30, meaning some 45 million borrowers could be back to paying close to $400 per month for their student loans by the end of this summer.
Earlier this year, Jefferies economist Thomas Simons, citing New York Fed data, said the average student loan payment before the pause was $393 per month. In a high inflation environment, resuming those payments after years of no payments could be a tall task.
The bill does not specify exactly how or when the Department of Education must resume collecting payments.
But the deal does not affect President Biden’s controversial student debt cancellation plan, which Republican leaders had been seeking to repeal as part of the debt ceiling negotiations. That plan, which provides up to $20,000 of loan forgiveness per borrower, still remains in limbo at the Supreme Court. A decision on whether or not it can proceed is expected in the coming weeks.
While the deal expressly ends the pause on federal student loan repayment, it is a move that was widely expected to happen at the end of the summer regardless.
The Department of Education previously said that payments would resume 60 days following either the Supreme Court decision or June 30, whichever came first.
In an interview with Fox News, McCarthy said that the pause costs the federal government roughly $5 billion each month in forgone revenue. He said The Fiscal Responsibility Act of 2023 would make sure that borrowers would be required to repay their student debt even if Biden’s student loan debt cancellation program gets struck down at the Supreme Court.
SEE ALSO:
• Debt Limit Standoff: Are Social Security Benefits at Risk?
• Supreme Court Hears Arguments on Biden’s Student Loan Forgiveness Plan
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.