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Cancellation of student debt prevents seizure of child tax credit, organizations say

  • Public Citizen has led more than 100 organizations to ask Biden to write off student debt or extend the payment hiatus.
  • They wrote that debt cancellation would protect delinquent borrowers from the loss of their child tax credit payments.
  • Defaulting on debt hurts borrowers’ credit ratings and can also lead to wage garnishment.

The delay in student loan payments not only impacts borrowers’ credit scores, but can prevent them from receiving essential benefits, like the child tax credit that Biden begins sending in July in the form of checks. monthly to families.

More than 100 organizations have said that the 9 million defaulting borrowers cannot afford to lose additional benefits, and the best way to avoid this is to write off student debt.

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

“The nearly nine million borrowers who default on federal student loans, most of whom are low-income and many with young children, will be subject to all of their tax repayments, including the CTC “seized by the Treasury, the organizations wrote. .

“For these student loan borrowers – and, more importantly, for their children – this entirely avoidable outcome will end one of this administration’s flagship achievements,” they added. “It’s time to act.”

Biden last week unveiled a $ 1.75 trillion cut social spending framework that included a one-year extension of the child tax credit: a benefit of $ 3,600 per child aged 5 and under, or $ 3,000 per child aged 6 to 17. As Insider reported, many parents rely on these payments to cover basic expenses, like food and education, helping 61 million children across the country.

But these payments are at risk for parents who are behind on their student loan payments. Failure to pay debt can lead to wage garnishment and payment garnishment like CTC until the borrower is caught up, harming not only borrowers but their families as well.

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

“I feel like I have been responsible and have paid a considerable amount on my student loans,” Wise said. “But it really is a debtors prison.”

Along with advocacy groups, lawmakers also want to protect defaulting borrowers. In July, Massachusetts Senator Elizabeth Warren and Rep. Ayanna Pressley led a group of Democrats in writing a letter to Education Secretary Miguel Cardona fearing that borrowers would “plunge” borrowers back into repayment without a plan to protect their ratings. credit and financial stability.

The Education Department is reportedly preparing a “safety net” for resuming payments in February, including a potential “fresh start” plan to automatically write off the debt of 7 million defaulting borrowers, but as has Politico reported, these plans are not yet finalized and the ministry has yet to comment on them.

As Biden has written off student debt for targeted groups of borrowers, pressure is mounting for him to largely write off student debt. Recently released documents revealed that a memo assessing Biden’s authority for a large student debt forgiveness has been in existence since April – his administration simply won’t reveal what the memo says.

“Canceling student debt would ensure that we do not punish those who ultimately failed to complete their education with years of defaults, bad credit and personal stigma,” the organizations wrote.


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