Will a Loan Affect My Social Security Benefits?

Social Security offers four main types of benefits. These include disability, supplemental, survivors and retirement benefits. How a loan, such as a Paycheck Protection Program (PPP) loan, affects your Social Security benefits depends on which kind of loan you take and how and when you use it. The Supplemental Security Income (SSI) is what you need to watch out for because it has strict eligibility criteria concerning the money you get.

Personal loans enable you to borrow a one-time lump payment that you can use to meet various financial needs. These needs could be personal, such as paying for your rent. However, they could also be business needs, such as maintaining a steady cash flow for your freelance business. The beauty of these loans is that you can pay them back (including the interest) in installments over a specified period.

The biggest issue with SSI is that it is a needs-based benefits program. One of its significant requirements is having a low income to be eligible for the benefit. Typically, SSI rules state that your total countable resources should not exceed ​$2,000​ if you are an individual or ​$3,000​ if you are an adult. That makes it difficult to know whether an influx of cash from a loan could work against you.

If you enter into an oral or written agreement to obtain cash, for food or shelter items such as mortgage and utility bills and agree you will pay the loan back later, SSI usually does not consider the value of the money or item you receive as part of your countable resources. Therefore, you can get a personal loan without it affecting your Social Security benefits. However, you must follow the set rules.

It is quite possible to enjoy the cash from a PPP loan and SSI benefits at the same time because the rules that apply to loans and Social Security benefits cut across the board.

That said, the Paycheck Protection Program ended on ​May 31, 2021​. But you may be eligible for loan forgiveness if you meet the eligibility criteria set for borrowers. Getting loan forgiveness could help your finances but since an agreement to pay back the loan is why you still qualify for SSI benefits, you may want to consult an expert first.

Under specified circumstances, a loan will affect your SSI benefits. Below are the conditions you should watch out for:

• You need to spend your loan in the month you borrow it. Otherwise, it will count as a resource in the next month.
• If you lend someone else money, what they owe you will count as a resource and, thus, affect your SSI benefits. However, the interest you receive will not count as income.

It is possible to enjoy a PPP loan and SSI benefits. However, what about other kinds of loans?

• Federal student loans and education grants don’t count as resources during SSI calculations. However, the latter must be used for fees and tuition. And should you default on those loans, your Social Security benefits will be garnished.
• Bank loans don’t count as resources for SSI calculation purposes, provided they fulfill the set conditions.
• Informal cash loans that must be paid back are not countable resources. But financial gifts are.

At the moment, you cannot borrow money from your Social Security benefits. But there have been discussions to allow people to do that.

Therefore, you cannot get an advance even if you are due some money each month. However, you may be eligible for a payday loan if you receive Social Security benefits. But the costs of borrowing such loans tend to be on the higher side.

It is always a good idea to factor in how loans affect your SSI benefits before borrowing. Even though they usually don’t count as a resource, if you don’t follow the set rules, your benefits may end up getting reduced. So, it never hurts to be careful.