Taxpayers who have defaulted federal student loans could seize their child tax credits … [+]
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Millions of student loan borrowers could be at risk of their child tax credit being withdrawn by the government.
A generous expanded child tax credit was part of President Biden’s American Rescue Plan, the Covid-19 relief package that Congress passed earlier this year. The new extended child tax credit can be up to $ 3,000 per child (and up to $ 3,600 per child under six years old) for single taxpayers earning less than $ 75,000 per year and taxpayers who are married together with a Deliver less than $ 150,000 in annual income. The tax credit takes the form of direct payments to taxpayers. These payments will be paid out from July.
But taxpayers who have defaulted on government student loans can be excluded from this crucial benefit. Federal law allows the government to intercept all federal cash flows for defaulting federal student loan borrowers and involuntarily apply those payments to their loan balance. This program, called Treasury Offset, was temporarily suspended as part of President Biden’s renewal of the CARES Student Loans Act. The CARES bill paused payments on government-held federal student loans, zeroed interest rates, and halted all collection efforts, including involuntary netting and interception by the Treasury Offset program. However, these protective measures are expected to expire on September 30th.
As soon as the debt collection moratorium ends this fall, Treasury Offset can be resumed. Over 5 million borrowers have defaulted on their federal student loans and could be at risk of their child tax credit cash payments being intercepted after September 30th.
Student loan advocates are sounding the alarm. “If the government does not act quickly and decisively, cash provided by one of the most important tools the nation has in its poverty reduction arsenal will soon be withheld from struggling student loan borrowers and instead intercepted by the Department of Education,” wrote Persis Yu and Seth Frotman in a blog post for the National Consumer Law Center. Yu is the director of the Student Loan Assistance Project at the National Consumer Law Center, and Frotman is the executive director of the Student Loan Protection Center and former student loan ombudsman for the Consumer Financial Protection Bureau.
Proponents have urged the Department of Education to automatically remove student loan borrowers from late payments before the debt collection moratorium expires in September. The CARES Act contains a provision that allows the months of suspended payments to qualify for loan cleanup, a 9-month payment program that allows borrowers to default on their federal student loans. “Since 14 months have passed since the hiatus began in March 2020 and only 9 months of payments are required to qualify for the loan renovation, the ministry has the authority to allow every single borrower who is in default to keep his loans on time, ”wrote Yu and Frotmann.
Meanwhile, activists and progressive lawmakers continue to put pressure on the Biden government to unilaterally erase student loan debt on a larger scale through executive action. The Department of Education and Justice are conducting a legal review to determine if Biden would be empowered to issue a major student loan waiver. The results of this review could be published in the coming months.
further reading
Biden Administration Announces Comprehensive Overhaul of Income-Based Repayment and Allocation Programs for Student Loans
Will Biden cancel the student loan debt? Maybe we will know soon
Biden’s Student Loan Forgiveness Review: Should You Take Steps Now to Relieve Student Debt Later?
New data shows that most who apply for this student loan program are turned down
source https://collegeeducationnewsllc.com/these-student-loan-borrowers-could-lose-their-child-tax-credit/
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