Benefits won't be offset by student loans in default
The U.S. Department of Education announced this month that it will take steps to protect child tax credit benefits received by student loan borrowers - even if those borrowers are in default on their loans. Under the previous policy, borrowers with loans in default could see any tax credit benefits reduced to offset outstanding federal loan obligations.
The National Consumer Law Center (NCLC) notes that this decision is expected to have a measurable impact for working families. Assuming that there are approximately 4 million borrowers with dependent children with defaulted student loans – and that most of these families qualify to receive at least $1,500 in CTC payments in their refund this year — it’s estimated that roughly $6 billion in CTC funds that may otherwise have been seized will instead go to helping low-income families meet their basic needs and to reducing childhood poverty and hunger.
“We applaud Secretary Cardona for committing to make sure that families struggling with federal student loan debt do not have their CTC payments in tax refunds seized as a result,” said Abby Shafroth, Director of NCLC’s Student Loan Borrower Assistance Project. “This commitment means that millions of student loan borrowers with children will receive the financial support they need to make ends meet this year.”
Following this development, NCLC worked with a coalition of allies in sending a letter to U.S. Treasury Secretary Janet Yellen, urging the Treasury Department to protect CTC and Earned Income Tax Credit (EITC) payments from seizure in collecting on government debts.
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