Federal student loan borrowers whose loans are in default won’t have to worry about having their enhanced Child Tax Credit refunds seized this tax season, easing the minds of millions of borrowers who might have heard rumors that the Department of Education would step in to take its cut.
After reports surfaced that the government might garnish Child Tax Credit refunds from delinquent borrowers, an Education Department official told CNBC on Tuesday that the agency has no plans to do so.
“The continued pause on student loan payments has helped protect Child Tax Credits for millions of borrowers, including those in default,” the official, who spoke on condition of background, wrote in an e-mailed statement. “The Department of Education will ensure that families will not see their CTC benefits garnished through Treasury offset this tax season, those refunds issued after May 1.”
A pause on federal student loan payments issued during the early days of the COVID-19 pandemic was extended to May 1, 2022, by President Joe Biden, meaning borrowers’ tax refunds issued before May 1 are legally protected. But that protection ends on May 1, CNBC reported.
There had been concerns that borrowers who have defaulted on their federal student loans would get part of the CTC seized this tax season. The first half of the credit was distributed in monthly advance payments during the last six months of 2021. The second half can be claimed on tax returns during the 2022 tax season.
The Treasury Offset Program gives the federal government the right to collect past-due debts owed to state and federal agencies through wage and tax garnishments – and it has exercised that right for decades. But financial distress caused by the pandemic has left millions of Americans struggling to pay their everyday bills, let alone setting aside enough money to repay student loans.
“We’re talking of many thousands of dollars on the line here for low-income families,” Abby Shafroth, an attorney and director of the student loan borrower assistance project at the National Consumer Law Center, told CNBC. “All those benefits [of the pandemic-relief law would] be lost for families suffering from unaffordable student loans.”
Borrowers are typically considered to be in default if they fall at least 270 days behind on federal student loan payments, CNBC noted. By that definition, around 9 million borrowers are currently in default — and about half of them are parents with dependent children, meaning they are eligible for the Child Tax Credit.
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