This week, the National Consumer Law Center updated its policy brief highlighting the need to end the seizure of Earned Income Tax Credits (“EITC”) from defaulted federal student loan borrowers.
As we have said in previous blog posts (here and here), seizing EITC payments is a counterproductive policy. The EITC is extremely important to working families and is effective not only in alleviating existing poverty, but also in lifting future generations out of poverty. Moreover, systemic obstacles, a lack of effective support, and abusive practices often precede a borrower’s default. Taking these funds from low-income borrowers, who in many cases were denied the promised benefits of education, compounds these harms and injures borrowers’ children in meaningful and potentially long-lasting ways.
The effect of the government’s EITC seizures is also punitive. While defaulted low-income borrowers may face EITC seizures of thousands of dollars in a single year, borrowers in good standing with the same amount of debt have notably lower payment obligations, potentially as low as $0 a month. The seizures even penalize borrowers who are actively utilizing programs designed to get their loans out of default and into good standing, impeding their ability to do so.
In light of the EITC’s intended purpose of helping to lift working families out of poverty and the harms caused by the seizure of borrowers’ EITC payments, this practice must stop. The policy brief highlights opportunities for Congress to put an end to EITC seizures.
We also highlight measures that the Department of Education can take in the meantime. Currently, the Department reimburses a borrower’s tax refund offset if the borrower is experiencing extreme hardship, generally limited to cases of imminent eviction or foreclosure where the borrower provides a court order indicating that the foreclosure or eviction has been approved. As the stories borrowers have shared show, this standard ignores the ways that borrowers experience extreme financial hardship and needs to be relaxed.
We thank all of you who have taken the time to tell us how seizure of the EITC has impacted your family. We continue to receive more stories than we can respond to, but we read all of them and they help us in our fight to end this harmful practice. Has this happened to you? How were you planning on using your EITC refund? Share your story to help us put an end to this practice.