Despite CARES Act provision suspending all collections of outstanding federal student debt until September 30, reports show Education and Treasury Departments may be continuing to seize tax refunds  

WASHINGTON – U.S. Senators Amy Klobuchar (D-MN) and Tina Smith (D-MN) joined U.S. Senators Ron Wyden (D-OR), Patty Murray (D-WA), and 24 colleagues in calling on the Trump Administration to halt the seizure of tax refunds from federal student loan borrowers in default and refund any payments seized contrary to Coronavirus Aid, Relief, and Economic Security (CARES) Act requirements.

In a letter to Education Secretary Betsy DeVos and Treasury Secretary Steven Mnuchin, the senators raised concerns about the reported garnishment of federal tax and state refunds from Americans with defaulted student loans. The continued seizure of tax refunds, known as a tax offset, violates a provision in the CARES Act that suspends the collection of all federally held defaulted student loans until September 30, 2020. This provision was intended to provide relief to student loan borrowers experiencing financial strain during the coronavirus (COVID-19) crisis.

“More than 1 million borrowers default on their loans each year. At a time when income inequality is increasing at a staggering rate, rents are skyrocketing and wages are stagnant, this massive debt on the backs of nearly 45 million Americans is too heavy to bear. Now, unemployment is at the highest level since the Great Depression and millions of Americans are facing impossible financial choices,” the senators wrote. “Congress recognized the financial strain on student loan borrowers and was clear in the CARES Act: student loan borrowers need relief during this ongoing economic upheaval caused by the COVID-19 pandemic.”

“We urge you to immediately stop all offsets of tax refunds and return these amounts to borrowers in accordance with the CARES Act,” the senators concluded.

In addition to Klobuchar, Smith, Wyden, and Murray, the letter was signed by Senators Sherrod Brown (D-OH), Tom Carper (D-DE), Jeff Merkley (D-OR), Dick Durbin (D-IL), Ed Markey (D-MA), Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA), Bob Casey (D-PA), Richard Blumenthal (D-CT), Kamala Harris (D-CA), Kirsten Gillibrand (D-NY), Angus King (I-ME), Mazie K. Hirono (D-HI), Tim Kaine (D-VA), Dianne Feinstein (D-CA), Jack Reed (D-RI), Patrick Leahy (D-VT), Brian Schatz (D-HI), Chuck Schumer (D-NY), Cory Booker (D-NJ), Bernie Sanders (I-VT), Tammy Duckworth (D-IL), and Bob Menendez (D-NJ).

The letter is available HERE.

To fully understand how this situation has continued in violation of the CARES Act, the senators requested that the agencies respond to the following questions by July 10, 2020:

1.         Did the Department of Education adequately and promptly notify the U.S. Treasury that it should cease collections of tax refunds from borrowers in default after March 13, 2020, including providing a list of those borrowers to Treasury?

a.         If so, did Treasury immediately stop offsetting defaulted borrowers’ federal and state income tax refunds after it was provided a list of borrowers?

2.         Please provide a detailed and documented timeline (beyond the press release referenced above) showing communication between agencies regarding all efforts to stop the collection of tax refunds after March 13, 2020.

3.         Regarding federal tax return offsets since March 13, 2020:

a.         How many federal student loan borrowers in default have been subject to federal tax refund offsets?
b.         What steps has Treasury taken to return tax refunds taken from borrowers in violation of the CARES Act?
c.          What is the total amount of federal tax refunds that have been offset?

4.         Regarding state tax offsets since March 13, 2020:

a.         How has the U.S. Treasury worked with states to ensure state income tax refunds are not seized?
b.         How many federal student loan borrowers in default have been subject to state tax refund offsets?
c.          What steps has Treasury taken to return tax refunds from borrowers in violation of the CARES Act?
d.         What is the total amount of state tax refunds that have been offset?

5.         For borrowers whose federal and state tax refunds were offset since March 13, have been seized, what is the status of returning those refunds?

6.         When will the Department of Treasury complete a full refunds, and are there any borrowers for whom Treasury believes there will be delays in returning the funds?

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