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Senate Dems Say Student Debt May Be Withheld From Tax Refunds

June 26, 2020
 
 

Top Democrats on the Senate committees dealing with education and tax revenue raised concerns Thursday that the IRS has continued to withhold owed student loan payments from borrowers’ tax refunds, despite a prohibition in the CARES Act.

Senator Ron Wyden, the ranking Democrat on the Finance Committee, and his counterpart on the Health, Education, Labor & Pensions committee, Senator Patty Murray, asked the Treasury and Education Departments in a letter how much in refunds have been seized from borrowers since the passage of the coronavirus relief package in March.

Congress, in response to rising unemployment during the coronavirus pandemic, had in the CARES Act excused most student loan borrowers from making payments through Sept. 30. The act also forbade the Education Department from collecting outstanding student debt by taking it out of refunds, garnishing wages or through other involuntary collection measures.

Consumer groups, though, charge the debts are being withheld from tax refunds. Last month, two consumer groups, Student Defense and Democracy Forward, filed a federal class action lawsuit against U.S. Treasury Secretary Steven Mnuchin and Education Secretary Betsy DeVos, pointing to data on the Treasury website that $19 million has been seized and sent to the Education Department since April 1.

The Education Department has said it is working to get the Treasury Department to refund money it seizes to borrowers more quickly. Angela Morabito, an Education Department spokeswoman, responding to the letter signed by 28 Senate Democrats said the processing time to make refunds has dropped from several weeks to four to five business days. 

The department said it has also been working with loan servicers to get employers to stop garnishing wages for unpaid student loans. The number of employers doing garnishments has dropped by almost 99 percent, but the department acknowledged nearly 3,600 are still garnishing the wages of about 5,000 borrowers.

The senators wrote in the letter, “Unemployment is at the highest level since the Great Depression and millions of Americans are facing impossible financial choices. 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.”

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