These Student Loan Borrowers Could Lose Their Child Tax Credit - Forbes

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Millions of student loan borrowers could be at risk of having their child tax credit seized 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 enacted in the spring. The new expanded child tax credit can provide up to $3,000 per child (and up to $3,600 per child under six years old) for single taxpayers earning under $75,000 per year, and joint married tax filers earning under $150,000 per year. The tax credit will take the form of direct payments to taxpayers. These payments will start to be disbursed in July.

But taxpayers who have defaulted federal student loans 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 involuntarily apply those payments to their loan balance. That program — called Treasury Offset — has been temporarily suspended under President Biden’s extension of the CARES Act’s student loan provisions. The CARES Act paused payments on government-held federal student loans, set interest rates to zero, and stopped all collections efforts, including involuntarily offset and intercepts through the Treasury Offset program. But those protections are scheduled to expire on September 30.

Once the collections moratorium ends this fall, Treasury Offset can resume. Over 5 million borrowers are in default on their federal student loans, and thus could be at risk of having their cash payments from the child tax credit intercepted after September 30.

Student loan borrower advocates are sounding the alarm bell. “Unless the administration takes swift and decisive action, cash made available through one of the most important tools that the nation has in its arsenal to fight poverty will soon be denied to 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 Borrower Assistance Project at the National Consumer Law Center, and Frotman is the Executive Director of the Student Borrower Protection Center and former Student Loan Ombudsman at the Consumer Financial Protection Bureau.

Advocates have called on the Department of Education to automatically remove student loan borrowers from default before the collections moratorium expires in September. The CARES Act includes a provision that allows the months of suspended payments to qualify towards loan rehabilitation, a 9-month payment program that allows borrowers to bring their federal student loans out of default. “With 14 months already passed since the pause began in March 2020, and only 9 months of payments necessary to qualify for loan rehabilitation, the Department has the authority to make every single borrower in default eligible to be current on their loans,” Yu and Frotman wrote.

Meanwhile, activists and progressive lawmakers continue to pressure the Biden administration to unilaterally cancel student loan debt on a wider scale using executive action. The Department of Education and Department of Justice are conducting a legal review to determine whether Biden would have authority to enact broad student loan forgiveness. The results of that review could be released in the coming months.

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These Student Loan Borrowers Could Lose Their Child Tax Credit - Forbes

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