The Concept of Social Security Child's Benefits

The original Social Security Act of 1935 contained no provisions for the payment of any type of dependents' benefits. However, even before monthly payments began, the law was significantly changed in the 1939 Amendments to transform the program into a family-benefits social insurance system. In addition to benefits for the survivors of deceased workers, the program was broadened to include dependents' benefits paid to the spouse and/or minor children of the retired worker. (After disability benefits were added to the program in 1956, these same type of dependents' benefits eventually became available to the families of disabled workers as well.)

The basic concept of the Social Security program is that it is designed to partially offset the loss of income to the family when a worker retires, becomes disabled, or dies. The rationale for paying benefits for minor children was that when a retired or disabled wage earner has dependent children, the amount of lost earnings that need to be replaced are greater than if the worker is single, and so a benefit is paid for each dependent child. The Social Security Board explained the provisions of the 1939 Act in this regard as follows:

"The practical objective of the old-age insurance provisions is to prevent old-age dependency. The effectiveness of the program will be measured by the extent to which it enables the worker to maintain himself in his old age without benefit of public assistance or relief. This practical objective necessitates . . . the recognition that the benefits to annuitants who have wives or children to support must be larger than the benefits of those annuitants who have no dependents . . . Therefore, it is desirable that, as early as possible, benefit payments be at least sufficient in amount to afford subsistence to the aged recipient and his dependents. This is accomplished under the amendments in two ways: . . . (2) supplementary benefits related to the wage earner's own benefit are provided for his wife if over age 65 and for his children if under age 18. This recognizes the greater presumptive need of families in which the wage earner has such dependents." {1}

The Concept of "Student" Benefits

Under the 1939 law, a minor child of an eligible Social Security beneficiary could receive a Social Security payment until he/she attained age 18. Benefits stopped at this point because the child was no longer presumed to be dependent on the beneficiary once they reached this age--that is to say, they were no longer considered to be a "child." (Later amendments would add the category of "disabled adult child" under which a child past the age of 18 could continue to receive child's benefits if they were under a disability that started prior to age 18. Here again, the rationale was that such a disabled child can be presumed to still be dependent on his/her parents for support.)

In the 1965 Social Security Amendments the definition of a "child" was broadened. In addition to presuming that a child under age 18 was dependent on its parents, the Social Security program began to recognize the reality that children who are full-time students after age 18 are often still in fact dependent on their parents for their support. Consequently, the existing Child's Benefit was extended in its duration to include children of the Social Security beneficiary who were full time students, and under the age of 22. The age of 22 was selected because this would be the usual time period for a student to complete a four-year college education.

Thus, the "student" benefits added to Social Security in 1965 were not really student benefits--they were an extension of Child's Benefits. Although there was concern about the children of Social Security beneficiaries being unable to pursue an education, the basic rationale for these payments had to do with the presumed dependency of the full-time student on his/her parents. That is to say, it was predicated on the same rationale as the long-standing Child's Benefit. Technically, they were in fact Child's Benefits.

As the House Ways & Means Committee explained this new provision in its Report on the 1965 legislation:

"PAYMENT OF CHILD'S INSURANCE BENEFITS TO CHILDREN ATTENDING SCHOOL OR COLLEGE AFTER ATTAINMENT OF AGE 18 AND UP TO AGE 22

Under present law a child beneficiary is considered dependent, and is paid benefits, until he reaches age 18, or after that age if he is disabled before age 18 and is still disabled. The committee believes that a child over age 18 who is attending school full time is dependent just as a child under 18 or a disabled older child is dependent, and that it is not realistic to stop such a child's benefit at age 18." {2}

The Payment of Student Benefits

Although properly speaking, Social Security student benefits were in fact Child's Benefits, they quickly came to be viewed as a form of "student aid," paid, in effect, to help students pursue their education. This popular conception was difficult to displace by any more precise understanding of the social insurance principles underlying the benefit. In any case, the benefits were quite popular. In the peak year of 1977, almost 900,000 students were receiving this type of benefit. In the peak pay-out year of 1981, almost $2.4 billion was paid in the form of student benefits.

Although these benefits were popular with the students and their parents, there were at least three problems with student benefits.

The first problem was the relatively large volume of overpayments experienced in the program. Since receipt of the benefit depended upon the child being a full-time student, in any period in which they were not a full-time student, they would be ineligible for the payment. So if the student dropped-out, or scaled-back their attendance to that of a part-time student, their benefits were supposed to stop. The Social Security Administration (SSA) depended almost entirely on self-reporting by the students or their parents to learn about such changes in status. Often these reports were not made. By the late 1970s this had become a cause for concern. An internal SSA study in late 1978 estimated that as much as $150 million a year was being overpaid in this manner. A study by the General Accounting Office in early 1979 put the figure at $300 million. (The recovery rate on the overpayments was about 75%--which means that the government would eventually recoup most, but not all, of the money.)

The second problem with student benefits was their cost, in a period when the Social Security program was facing budget pressures. At more than $2 billion a year, student benefits were small enough not to be a major component of the Social Security program, and yet were large enough to yield significant potential savings from scaling-back or eliminating these expenditures. Starting in the mid-1970s, the Social Security program experienced several years of adverse economic conditions, which had the effect of producing concerns about its solvency. Policymakers were looking for ways to reduce the costs of the Social Security program as part of an initiative to address its solvency, and students benefits would turn-out to be an attractive option.

The third problem has to do with the conceptual basis of these benefits. If they were rationalized on traditional social insurance grounds, then the argument used in 1965 would still be valid: full-time students under age 22 are presumed to be the dependent children of the Social Security beneficiary and the family therefore needs a higher portion of its lost earnings replaced by Social Security benefits. But as the popular conception of these benefits verged from this foundation, their rationale came into question. Once this type of Child's Benefit came to be seen as a form of student-aid, its continuing support became dependent on considerations other than social insurance principles. Indeed, the argument for eliminating the benefit became that there were in existence abundant and available forms of student aid, rendering this type of benefit unnecessary. When student benefits were repealed as part of the Omnibus Budget Reconciliation Act of 1981, the Senate Budget Committee offered this explanation:

"Although the committee believes that a child beneficiary's benefits should continue long enough to permit him a reasonable opportunity to complete high school, benefits for post-secondary students 18 and older should be gradually eliminated over the next several years. Federal educational assistance is available for post-secondary students for whom financial assistance is essential to complete their education. (Since the time the student benefit was created in 1965, the amount of such federally funded educational assistance has grown from less than $300 million to about $7 billion a year.) State, local, and private resources would also be available to assist these students. Programs whose explicit purpose is to provide financial assistance for education would be able to tailor the amount of aid to the educational and living expenses incurred by the student, and to the financial resources available to the student and his family." {4}

Legislative Action to Repeal Student Benefits

In its 1977 and 1978 budgets, the Ford Administration proposed a phase-out of student benefits; in its 1979 budget the Carter Administration made a similar proposal. When the Reagan Administration took office in early 1981, it offered a comprehensive budget and tax proposal designed to achieve its economic objectives. Within this budget blueprint, was a large set of Social Security proposals, primarily aimed at reducing the cost of the Social Security program.

As part of its Fiscal Year 1982 budget proposals, the Administration offered several sets of Social Security proposals. The Reagan Administration's legislative proposal initially contained 12 provisions eliminating or cutting-back on various Social Security benefits and 10 provisions making cuts in Medicare. The Administration plan was introduced in the House on May 6, 1981 as H.R. 3457 and in the Senate on June 1, 1981 as S. 1292. Among the 12 Social Security proposals was one eliminating students benefits. Specifically, the proposal was to:

• Eliminate payments to students aged 18-21 pursuing higher education, effective August 1981, with a 3-year phase-out for current college students;
• Eliminate payments to elementary and/or secondary school students upon attainment of age 19, effective August 1982.

On May 12, 1981 the Administration offered another legislative package, with 13 additional proposals for Social Security programs, virtually all of which were cuts of various types. Several of these proposals were quite dramatic, including: cutting early retirement benefits by 25%; eliminating regular child's benefits for the children of retired workers under age 65; eliminating the minimum benefit for current and future beneficiaries; no longer considering vocational factors in disability determinations; doubling the duration of a disability before benefits could be claimed; and a one-time delay in the annual COLA benefit increase, among other proposals.

Although introduced initially as stand-alone bills, the Social Security and Medicare proposals became part of the budget reconciliation process in Congress and were eventually included in both Chambers' versions of the Omnibus Budget Reconciliation Act of 1981. The House passed its version of the Budget Reconciliation Act (H.R. 3982) on June 26, 1981 by a vote of 232 to 193. The Senate passed its version of the bill on June 25th, by a vote of 80 to 15. Both versions of the bill included the phase-out of student benefits, modified such that:

• The phase-out of benefits to post-secondary students would take place such that the benefit would be reduced 25% per year, starting in September 1982 and concluding in September 1984.
• Benefits would only be paid to post-secondary students for 8 months a year rather than the full 12 months.

Since the two versions of the bill differed somewhat, a House-Senate Conference Committee was convened during July 22-29, 1981 to resolve the differences between the two houses. This Committee, because of the many issues involved in the Omnibus bill, contained 72 Senators and 183 members of the House of Representatives. The Conference completed its work on July 29th and the Conference Report was adopted on a voice vote in the House on July 31, 1981 and later that same day it passed the Senate on a vote of 80-14. The bill, as Public Law 97-35, was signed into law by President Reagan on August 13, 1981.

The final version of the legislation concerning student benefits consisted of the following provisions:

• Benefits paid to post-secondary students ages 18-21 are to be phased-out;
• The phase-out is to be completed by April 1985;
• Benefits to elementary and/or secondary school students older than 18, are to end in August 1982;
• Current post-secondary students, or those entering school before May 1982, may continue to receive benefits until April 1985, except that their benefit amount will be reduced 25% each year starting in September 1982;
• During the phase-out students will not receive COLA increases:
• During the phase-out student benefits will not be payable during May through August.

Thus, under the provisions of the Omnibus Budge Reconciliation Act of 1981, student benefits for post-secondary and for elementary and/or secondary students older than 18, were phased-out and finally eliminated by April 1985. This change in the law was estimated to save the Social Security program $10.6 billion over the first five years.

Student benefits are still payable to elementary and/or secondary school students provided they are under age 19. Currently about 100,000 students receive this type of Child's Benefit each year--about one-tenth the volume prior to the change in the law.

Larry DeWitt
SSA Historian's Office
January 2001