Education Department won’t seize tax refunds for overdue student loans

Miguel Cardona, Secretary of Education, at the Queen Theater on December 23, 2020 in Wilmington, Delaware.

Joshua Roberts News Getty Images | Getty Images

The U.S. Department of Education has suspended the confiscation of tax refunds, social security and other government payments to repay outstanding student loans until November, the agency said.

About 9 million people have federal student loans in default, meaning they are at least 270 days behind with payments.

The Department of Education – as well as other federal and state agencies – can collect overdue debt through a Treasury compensation program that intercepts certain payments to collect the debt.

Borrowers received a reprieve during the Covid-19 pandemic due to a federal pause in loan repayment, interest and foreclosures.

But the policy will end after May 1 – raising concerns among consumer advocates that the government is confiscating tax refunds issued after that date, including benefits such as income, child and tax breaks targeted at low-income families.

However, the Department of Education will not restart foreclosure through the Treasury Compensation Program for six months after the end of the Covid-19 payment break, according to the Federal Student Aid website. This will be after November 1, when the pause will not be resumed.

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The department seems to have updated its policy last week, although the exact timing is unclear. An agency spokesman did not respond to a request for comment.

“This policy means that you will not lose money from some government payments, such as child tax credit, social security payments and tax refunds for the 2022 tax season,” the agency’s website said.

It is based on a narrower policy announced last week, which applied only to the payment of a tax credit to children. At the request of CNBC, Education Minister Miguel Cardona said On February 8, the agency will not withhold any tax refunds attributed to the children’s tax credit, even after May 1.

“The goal of these social security programs is to protect and prevent people in the United States from falling into poverty – not a system of reconciliation that the federal government can use for a student loan portfolio,” said Abigail Seldin, who runs the charity. focuses on access to public services.

Debt collection

In 2019, the treasury enrollment program raised nearly $ 4.9 billion to service debts held by the Department of Education, according to a fundamental analysis of publicly available data.

This will be about 78% of the total $ 6.3 billion in overdue non-tax arrears collected this fiscal year.

The government is allowed to confiscate 100% of federal tax refunds to collect non-tax debts related to alimony, unemployment insurance and state income taxes. It can also contain up to 65% of federal wages and up to 15% of social security payments, for example.

However, some payments, including payments for many programs related to the verification of tangible assets, are not eligible. The Treasury must also notify the debtor within 60 days of the intention to enroll.

Defaulted student borrowers will remain vulnerable after Nov. 1, added Seldin, who was a candidate to oversee student loans from the Biden administration.

According to the Center for American Progress, default disproportionately affects color borrowers, especially African Americans, as well as students with children, Pell grant recipients, and veterans.

According to consumer advocates, confiscating tax refunds from non-compliant borrowers would run counter to the U.S. Rescue Plan’s anti-poverty measures. The anti-pandemic law, which President Joe Biden signed in March, expanded tax breaks, such as income and child tax breaks.

According to the National Center for Consumer Law, even before the pandemic, withholding credit income from low-income families causes or exacerbates housing and financial instability and impairs workers’ ability to find and retain employment.

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