Education Department won’t seize tax refunds for overdue student

The U.S. Department of Education has suspended the seizure of tax refunds, Social Security and other government payments to satisfy defaulted student loans until November, the agency said.

About 9 million people have a federal student loan in default, which means they’ve fallen at least 270 days behind on payments.

The Education Department — as well as other federal and state agencies — can collect on delinquent debt via the Treasury Offset Program, which intercepts certain payments to recover the owed funds.

Borrowers have gotten a reprieve during the Covid-19 pandemic due to a federal pause on loan payments, interest and collection.

But that policy ends after May 1, fueling concern among consumer advocates that the government would seize tax refunds issued after that date, including benefits like the earned income, child and Recovery Rebate tax credits aimed at low-income households.

However, the Education Department will not restart collection via the Treasury Offset Program for six months after the Covid-19 payment pause ends, according to its Federal Student Aid website. That would be after Nov. 1, if the pause isn’t extended again.

More from Personal Finance:
Is college really worth it? Why it’s hard to figure out the return on investment
Why your tax return may get rejected if last year’s is still pending
3 timely ways to spend your tax refund this year

It appears the department updated its policy last week, though the precise timing is unclear. An agency spokesperson didn’t respond to a request for comment.

“This policy means you won’t lose money from certain government payments, such as the child tax credit, Social Security payments, and tax refunds for the 2022 tax season,” according to the agency website.

It builds on a narrower policy announcement last week that applied only to payments of the child tax credit. After a CNBC inquiry, Education Secretary Miguel Cardona said Feb. 8 that the agency wouldn’t withhold any tax refunds attributed to the child tax credit, even after May 1.

“The intent of these social safety net programs is to protect and prevent people in the U.S. from experiencing crushing poverty — not a reconciliation system for the federal government to use for the student loan portfolio,” said Abigail Seldin, who runs a charitable foundation that focuses on access to public services.

In 2019, the Treasury Offset Program collected nearly $4.9 billion to service debts held by the Education Department, according to a foundation analysis of publicly available data.

That would be about 78% of the total $6.3 billion in delinquent nontax debt collected that fiscal year.

The government is allowed to seize 100% of federal tax refunds to collect debts associated with child support, unemployment insurance and state income taxes. It can also withhold up to 65% of federal…