Federal student loan borrowers whose loans are in default won’t have to worry about their enhanced Child Tax Credit repayments being garnished this tax season, putting some peace in the minds of millions of borrowers who could have heard rumors that the Department of Education would step in to take his cut.
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After reports surfaced that the government may seize child tax credit repayments from delinquent borrowers, an Education Department official told CNBC on Tuesday that the agency has no plans to do so. .
“The continued pause in student loan repayments has helped protect child tax credits for millions of borrowers, including those in default,” the official, who spoke conditionally, wrote in a statement. sent by email. “The Department of Education will ensure that families do not have their CTC benefits seized by the Treasury offset this tax season, those refunds issued after May 1.”
A pause on federal student loan payments issued at the start of the COVID-19 pandemic was extended through May 1, 2022 by President Joe Biden, meaning tax refunds for borrowers issued before May 1 are legally protected. But that protection ends on May 1, CNBC reported.
There were fears that borrowers who have not repaid their federal student loans could have a portion of the CTC seized this tax season. The first half of the credit was distributed in monthly installments during the last six months of 2021. The second half can be claimed on tax returns during the 2022 tax season.
The Treasury Compensation Program gives the federal government the right to collect outstanding debts owed to state and federal agencies through wage and tax garnishments — and it has been exercising that right for decades. But the financial distress caused by the pandemic has left millions of Americans struggling to pay their daily bills, let alone set aside enough money to pay off student loans.
“We’re talking about thousands of dollars at stake here for low-income families,” Abby Shafroth, an attorney and director of the Student Borrower Assistance Project at the National Consumer Law Center, told CNBC. “All these advantages [of the pandemic-relief law would] be lost on families suffering from unaffordable student loans.
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Borrowers are generally considered in default if they are at least 270 days behind on federal student loan payments, CNBC noted. By this definition, around 9 million borrowers are currently in default – and around half of them are parents with dependent children, meaning they are eligible for the child tax credit.
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