Can you get a child tax credit if you’re behind on your student loan?

Consumer and child advocacy groups are asking Treasury Secretary Janet Yellen to let loan defaulters get their refunds

Two tax credits available to most families with children are at risk of being “clawed back” from people who owe money to the government, despite the tax credits’ purpose of helping children in need. Child advocates are now calling on policymakers to ensure important sources of financial support get to where they’re needed most.

More than 100 organizations this week signed a letter to U.S. Treasury Secretary Janet Yellen asking her to bar the Treasury Department from seizing refunds tied to the earned income tax credit and child tax credit from low-income families who’ve fallen behind on repayment of their student loans or other debts.

The practice “undermines the social safety net and threatens to push millions of children into poverty,” the letter says.

“The expansion of the (child tax credit) this year cut child poverty nearly in half and reduced food insufficiency among families by 26% since July 2021. This years’ fully refundable credit was especially effective in reaching the 27 million children (including half of Black, Latinx, and rural children) who previously lost out on the full credit because their parents’ income was too low,” the groups wrote. “But due to Treasury’s practice of offsetting tax refunds to collect government debt, millions of low-income families are at risk of not receiving these critical lifelines.”

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In the short term, a policy change may not be needed.

Student loan collection has already been paused until after May 1, which led to worry that once that pause ends, the tax refunds could be snagged. But the Education Department said it plans to suspend offset for six months after that to Nov. 1, protecting the 2022 tax season refund, according to a post on the Federal Student Aid website.

New Jersey news organization quoted the Treasury Department as saying that only Congress can exempt the child tax credit from offsets. Child advocacy groups remain concerned about the policy and how it could impact children.

For the second half of 2021, Congress allowed payment of an expanded child tax credit on a monthly basis to give families immediate access to the tax relief as a way of helping them through the pandemic.

Congress also protected those advance payments from interception, a practice called “offset” because it offsets some of what’s owed. But Congress didn’t protect those who receive part or all of the tax credit as a tax-time refund from having the fund offset.

Tax refunds and partial Social Security payments are among the money that can be seized by the federal government to help pay delinquent debt like federal student loans and owed child support via the Treasury Offset Program.

But advocates say the money should never be taken from tax credits that are designed to help the most financially vulnerable, including children.

“These offsets hurt families that are already demonstrably in financial distress and unable to afford their bills and deprive low-income children of critical resources,” the letter said.

In a news release on the letter, Maryann Broxton, a community partnership group member with the Center for Law and Social Policy, said advocates fought for years to both get and protect the two tax credits, which benefit income-eligible households that include children.

“People rely on them for much-needed necessities,” she said. “A new washing machine, a car repair, even eyeglasses or dental care.”

Most people who default on student loans have been economically and socially vulnerable for a long time, said Sameer Gadkaree, president of The Institute for College Access & Success. He noted that “the penalties of default plunge them deeper into financial instability, so the practice of taking their refunds just harms them further, rather than helping them.”

An estimated 9 million people have defaulted on federal student loans and are at least nine months behind on payments. Still, Education Secretary Miguel Cardona tweeted earlier this month that “The Child Tax Credit should be accessible, no matter your student loan repayment status.”

Other high-profile groups signing the letter to Yellen included Children’s Defense Fund, First Focus on Children, Center for Taxpayer Rights, and Coalition on Human Needs, among others.

The letter also asks Yellen to work with Congress and the administration to protect the money families receive from the child tax credit and earned income credit and to provide data so the public and policymakers can “better understand the scope of this problem,” including the number of people impacted and how much they’ve lost to offsets.