Millions of student loan borrowers may be at risk of having their child tax credits confiscated by the state.
The generous expanded child tax credit was part of President Biden’s U.S. bailout plan, a COVID-19 relief package that Congress passed in the spring. The new Extended Child Tax Credit can provide up to $ 3,000 per child (and up to $ 3,600 per child under six) for single taxpayers earning less than $ 75,000 a year and married couples with income less than $ 150 $ 000 per year. The tax credit will be in the form of direct payments to taxpayers. These payments will begin to be paid in July.
But taxpayers who fail to meet their federal student loan payments may be excluded from this critical benefit. Federal law allows the government to intercept any federal payment streams for defaulted federal student loan borrowers and force those payments to be paid on the loan balance. The program, dubbed Treasury Compensation, was temporarily suspended due to President Biden’s renewal of the student loan provisions of the CARES Program Act. The CARES Act suspended payments on government federal student loans, set a zero interest rate, and ended all collection efforts, including forced credit and interception through the Treasury program. But this protection expires on September 30th.
When the moratorium on fees ends this fall, the Treasury offset can be resumed. More than 5 million Borrowers do not pay off their federal student loans and thus may be at risk of intercepting their child tax credit payments after September 30th.
Student loan advocates are sounding the alarm. “Unless the administration takes swift and decisive action, the funds provided through one of the most important tools in the country’s arsenal to fight poverty will soon be out of reach of needy student loan borrowers and will instead be intercepted by the Ministry of Education,” writes Persis Yu and Seth Frothman Blog post for the National Center for Consumer Law. Yu is the director of the Student Borrower Assistance Project at the National Consumer Advocacy Center, and Frotman is the executive director of the Student Borrower Advocacy Center and former student loan ombudsman at the Consumer Financial Protection Bureau.
Advocates have called on the Department of Education to automatically bar student loan borrowers from default until a moratorium on fees expires in September. The CARES Act includes a provision that allows months of suspended payments to qualify for loan recovery, a 9-month repayment program that allows borrowers to repay their federal student loans due to default. “Since 14 months have passed since the start of the break in March 2020, and only 9 months of payments are required to obtain the right to recover the loan, the Department has the right to grant each defaulted borrower the right to current payments on their loans,” he said Yu and – Frotman wrote.
Meanwhile, activists and progressive lawmakers continue to pressure the Biden administration to unilaterally cancel student loan debt on a broader scale using executive action. The Department of Education and the Department of Justice are conducting legal due diligence to determine whether Biden will be eligible to seek forgiveness of the student loan in general. Results of this review may be released in the coming months…