Enhanced child tax credits will not be seized for overdue student loan payments this tax season, according to the Education Department. The pause on making federal loan payments would already protect refunds issued before May 1, but a spokesperson for the Education Department clarified that credits issued after then would not be garnished either.
An official from the department emailed a statement to CNBC on February 8 to clarify the issue.
“The continued pause on student loan payments has helped protect Child Tax Credits for millions of borrowers, including those in default,” the statement said. “The Department of Education will ensure that families will not see their CTC benefits garnished through Treasury offset this tax season, including those refunds issued after May 1.”
The federal government is able to withhold tax refunds or other payments in order to pay back debts to federal agencies. This includes paying back defaulted federal student loans. According to CNBC, federal student loans are typically considered to be in default after 270 days of nonpayment.
Per CNBC, there are over 9 million borrowers in default, and about half of those borrowers have children and qualify for the tax credit.
Abby Shafroth, an attorney and director of the student loan borrower assistance project at the National Consumer Law Center, told CNBC it would be low-income families at risk if the tax credits were garnished.
Shafroth said, “We’re talking of many thousands of dollars on the line here for low-income families. All those benefits [of the pandemic-relief law would] be lost for families suffering from unaffordable student loans.”
The Institute for College Access and Success issued a report in 2019 that found low-income students, first-generation students, black students, and students earning four-year degrees from for-profit colleges are more likely than any other group to default on their loans.
When President Joe Biden signed the American Rescue Plan into law in March, it increased the maximum child tax credit for kids under 18 to $3,000 and added a $600 bonus for each child under 6.
It also eliminated an earned-income eligibility requirement and turned the one-time refund into monthly payments, CNBC reported.
The American Rescue Plan took parents’ 2021 child tax credit and split it in half, issuing one half through the monthly payments. According to CNBC, the monthly payments were protected from being garnished. The other half of the child tax credits would be issued during tax season.
However, parents that were defaulted on federal student loans worried the second portion would be seized, CNBC reported.
Secretary of Education Miguel Cardona took to Twitter on February 8 to assure parents that their child tax credits would be protected.
“The Child Tax Credit should be accessible, no matter your student loan repayment status,” Cardona said. “USEDGov (U.S. Department of Education) will make sure families who have student loans in default do NOT see CTC benefits garnished – even for refunds issued after the payment pause ends.”
Tax season started on January 24 and will end on April 18. According to the IRS, they are already expecting delays in processing refunds.
