Ministry of Education won’t seize tax refunds for delinquent student loans
Miguel Cardona, U.S. Secretary of Education, at the Queen Theater on December 23, 2020 in Wilmington, Delaware.
Joshua Roberts | Getty Images News | Getty Images
The U.S. Department of Education suspended garnishment of tax refunds, Social Security and other government payments to satisfy delinquent student loans until November, the agency said.
About 9 million people have federal student loans in default, which means they are at least 270 days behind on payments.
The Department of Education — along with other federal and state agencies — can collect overdue debts through the Treasury Clearing Program, which intercepts certain payments to recover funds owed.
Borrowers have been granted a reprieve during the Covid-19 pandemic due to a federal pause on loan repayments, interest and collection.
But that policy ends after May 1 – fueling concern among consumer advocates that the government will seize tax refunds issued after that date, including benefits such as earned income tax credits, children and the clawback for low-income households.
However, the Department of Education will not restart collection through the Treasury Offset Program for six months after the Covid-19 payment pause ends, according to its Federal Student Aid website. That would be after November 1, if the break isn’t extended again.
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It appears the Department updated its policy last week, although the exact timing is unclear. A spokesperson for the agency did not return a request for comment.
“This policy means you won’t lose money on certain government payments, such as Child Tax Credit, Social Security payments, and tax refunds for the 2022 tax season,” according to the website. the agency.
It builds on a narrower policy announcement last week that only applied to child tax credit payments. After a CNBC investigation, Education Secretary Miguel Cardona noted On February 8, the agency would not withhold any tax refunds allocated to the child tax credit, even after May 1.
“The intent of these social safety net programs is to protect and prevent people in the United States from experiencing crushing poverty – not a reconciliation system that the federal government would use for the student loan portfolio,” said said Abigail Seldin, who runs a charitable foundation that focuses on access to public services.
In 2019, the Treasury Compensation Program collected nearly $4.9 billion to pay off debts held by the Department of Education, according to a fundamental analysis of publicly available data.
This would represent about 78% of the total $6.3 billion in outstanding non-tax debt collected this fiscal year.
The government is authorized to seize 100% of federal tax refunds to collect debts associated with child support, unemployment insurance, and state income taxes. It can also withhold up to 65% of federal wages and up to 15% of Social Security payments, for example.
However, some payments, including those for many means-tested programs, are exempt from offsetting. The Treasury must also provide 60 days’ notice to the debtor of the intention to set off.
Student borrowers in default will remain vulnerable after Nov. 1, added Seldin, who was a candidate to oversee student loans for the Biden administration.
According to the Center for American Progress, default has a disproportionate impact on borrowers of color, especially African Americans, as well as students with children, Pell Grant recipients and veterans.
Garnishing tax refunds from defaulting borrowers would have violated US bailout poverty measures, consumer advocates say. The Pandemic Relief Act, which President Joe Biden signed into law in March, improved tax benefits such as earned income and child tax credits.
Even before the pandemic, the suspension of the Earned Income Credit, which goes to low-income working families, is causing or exacerbating housing and financial instability and hurting workers’ ability to get and keep jobs, according to the National Consumer Law Center.