Student-loan borrowers who default could have their child tax credit payments seized - something that's 'entirely preventable' if Biden cancels student debt now, 105 organizations say

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Joe Biden
    Joe Biden
    46th and current president of the United States
A hand-written sign reading "Cancel Student Debt" is held up and the White House is seen in the background.
A sign is displayed in front of The White House on June 15, 2021 in Washington, DC. Paul Morigi/Getty Images
  • Public Citizen led over 100 organizations in calling on Biden to cancel student debt or extend the payment pause.

  • They wrote that debt cancellation would protect defaulted borrowers from losing their child tax credit payments.

  • Defaulting on debt hurts borrowers' credit scores and can lead to wage garnishment, as well.

Falling behind on student-loan payments not only impacts borrowers' credit scores - it can prevent them from receiving critical benefits, like the child tax credit Biden starting sending out in July as monthly checks to families.

Over 100 organizations said the 9 million defaulted borrowers cannot afford to lose additional benefits, and the best way to prevent that is student-debt cancellation.

Public Citizen, a progressive nonprofit, led 104 organizations last week in sending a letter to President Joe Biden urging student-debt cancellation before payments resume in February - and if he doesn't cancel student debt, they are pushing for an extension of the payment pause. The letter highlighted a number of benefits student debt cancellation would bring to borrowers, the economy, and racial justice, with one of those reasons being protecting borrowers with children who rely on the child tax credit (CTC).

"The nearly nine million borrowers who are in default on federal student loans, most of whom are low-income and many of whom have young children, will be subject to having their entire tax refunds including CTC" seized by the Treasury, the organizations wrote.

"For those student loan borrowers-and, most importantly, for their children-this entirely preventable outcome will unwind one of this administration's signature achievements," they added. "The time to act is now."

Biden unveiled a scaled-down $1.75 trillion social-spending framework last week that included a one-year extension of the child tax credit: a benefit of $3,600 per child age 5 and under, or $3,000 per kid between 6 and 17. As Insider reported, many parents are relying on those payments to cover basic expenses, like food and education, helping 61 million kids across the country.

But those payments are at risk for parents who are behind on their student-loan payments. Defaulting on debt can cause wages to be garnished and payments like the CTC to be seized until the borrower gets caught up, hurting not only borrowers, but their families, too.

Insider previously spoke to David Wise, a 59-year-old borrower with $236,485 in outstanding student loans. A low salary caused him to fall behind on his monthly payments, leading his employer to garnish his wages, pushing him into default.

"I feel like I've actually been responsible, and I've paid a considerable amount of money on my student loans," Wise said. "But it really is a debtor's prison."

Along with the advocacy groups, lawmakers also want to protect borrowers in default. In July, Massachusetts Sen. Elizabeth Warren and Rep. Ayanna Pressley led a group of Democrats in writing a letter to Education Secretary Miguel Cardona with concerns of "plunging" borrowers back into repayment without a plan to protect their credit scores and financial stability.

The Education Department is reportedly preparing a "safety net" for when payments resume in February, including a potential "fresh start" plan to automatically erase debt for 7 million defaulted borrowers, but as Politico reported, those plans are not finalized yet and the department has yet to comment on them.

While Biden has canceled student debt for targeted groups of borrowers, pressure is building for him to cancel student debt broadly. Newly released documents revealed that a memo assessing Biden's authority for broad student debt cancellation has existed since April - his administration just won't reveal what the memo says.

"Canceling student debt would ensure we are not punishing those who ultimately could not finish their education with years of default, bad credit, and personal stigma," the organizations wrote.

Read the original article on Business Insider

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting