Student loan borrowers who default may see child tax credit garnished

Millions of parents who’ve defaulted on their federal student loans may get part of their child tax credit seized this tax season.

The federal government has long been able to collect past-due debts, like child support, owed to state and federal agencies. This occurs via the Treasury Offset Program, which lets the government withhold Social Security checks, tax refunds and other payments to satisfy debts.

But such an outcome with respect to the child tax credit seems to be at loggerheads with the poverty-fighting policy goal of the American Rescue Plan Act, which temporarily enhanced the credit’s value and made it available to more low-earning parents in 2021, according to consumer advocates.

“We’re talking of many thousands of dollars on the line here for low-income families,” said Abby Shafroth, an attorney and director of the student loan borrower assistance project at the National Consumer Law Center. “All those benefits [of the pandemic-relief law] will be lost for families suffering from unaffordable student loans.”

A spokesperson for the U.S. Department of the Treasury referred a request for comment to the U.S. Department of Education. An Education Department spokesman didn’t return a request for comment by press time.

A borrower is generally in default if they fall at least 270 days behind on federal student loan payments. (Terms may vary by loan type.)

There are roughly 9 million borrowers in default. Half of them are parents with dependent children — the population eligible for the child tax credit, according to a 2019 report issued by the Institute for College Access and Success.

Low-income students, Black students and those earning a four-year degree from a for-profit college are more likely to default on their student loans than other groups, according to the Institute.

The American Rescue Plan, which President Joe Biden signed into law in March, boosted the maximum value of the child tax credit to $3,000 per child under age 18, with a $600 bonus for kids under 6 years old.

It also broadened eligibility for the credit by eliminating an earned-income requirement that presented a road block for the poor. It also turned the tax credit (which is typically issued as a one-time refund during tax season) into a monthly income stream.