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In the face of our lawsuit, the Treasury Department returned Cole and millions of other borrowers’ illegally-seized tax refunds

Despite the CARES Act suspension of all involuntary collection of federal student loans, the Department of Education and the Treasury Department unlawfully continued their program that takes tax refunds to pay federally-held debts. Under normal circumstances, the Department of Education has the authority to seize, or “offset,” the tax refunds of borrowers who default on their federal student loans.

The Treasury Offset Program, run by the Bureau of Fiscal Service, enables the federal government to collect past-due, federally held debts from taxpayers’ refunds. The CARES Act halted all involuntary collection of student loans as of March 27, 2020, including tax refund offsets. Agencies are responsible for making referrals about legally enforceable past-due debt to the Fiscal Service and for notifying it when the debt is no longer enforceable.

Nevertheless, the Education and Treasury Departments unlawfully garnished plaintiff Kori Cole’s federal tax refund — worth nearly $7,000 — to collect on a student loan. All told, they illegally seized tax refunds that should have remained in the pockets of thousands of student borrowers dealing with the fallout from the coronavirus crisis. In the month of April alone, Treasury offset more than $18 million from over 11,000 student borrowers to pay debts owed to Education.

Cole and her family had counted on using their federal tax refund to pay for living expenses as they weathered the public health crisis — but found themselves unable to pay their bills in full after the Department of Education and the Treasury Department seized their entire refund to pay down Ms. Cole’s student loan debt.

In another example of the Trump administration’s blatant mismanagement, Student Defense filed a separate suit when the Department of Education failed to halt the garnishment of 54,000 borrowers’ paychecks. And a recent report likewise revealed that nearly 5 million student loan borrowers have had a federally contracted company report incorrect information on their credit reports since the coronavirus crisis began.

We filed a class-action lawsuit with Student Defense on behalf of affected student borrowers to force an immediate halt to the illegal seizures and a return of all unlawfully seized tax refunds. The Education and Treasury Departments’ failure to stop the illegal seizure of student borrowers’ tax refunds reflects the Trump administration’s indefensible lack of interest in protecting the more than 44 million Americans saddled with a collective $1.5 trillion in student loan debt. Our class-action suit was filed on May 27 in the U.S. District Court for the District of Columbia.

Shortly after our class action lawsuit, the Treasury Department returned Cole and millions of other borrowers’ illegally-seized tax refunds. After we filed suit, the Department of Education admitted that it had seized billions of dollars in tax refunds from millions of student borrowers amidst the pandemic, and the Treasury Department proceeded to return borrowers’ refunds.

Jeffrey Dubner

Managing Senior Counsel

Litigating challenges to unlawful actions, abuses of power, and threats to democracy on behalf of those who are harmed.

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