Thousands of student loan borrowers who seriously need their tax refund money now aren’t getting it because the federal government isn’t following its own rules, a new lawsuit charges.
The $2.2 trillion stimulus bill passed in March put a six-month pause on the Department of Education’s ability to take someone’s tax refund money and apply it towards their defaulted student loans.
Nevertheless, the offsets are still allegedly happening, according to a class-action lawsuit against the Department of Education and the Treasury Department.
The case, filed Friday, echoes a recent lawsuit alleging that some student loan borrowers are wrongfully getting their wages garnished while the coronavirus outbreak continues.
A third case says credit bureaus and some student loan servicers are damaging millions of borrowers’ credit scores, even though the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act let borrowers stop paying their loans for six months.
The lead plaintiff in the new lawsuit, Kori Cole, 34, said she and her husband were banking on using their $6,859 federal tax refund for bills and living expenses.
But the Arvada, Colo. mother of two received an April 8 notice from the government saying the entire refund was going towards the $23,000 she still owes on her student loans. Cole earned an associate’s degree to become an X-ray technician, but her lawyers say she’s home raising the couple’s 6- and 9-year-old children right now.
Student loans go into default after a borrower fails to make payments for a certain period of time. Some federal loans go into default after nine months of non-payment, but some can default after one missed payment, according to NerdWallet.
Between the offset refund and business drying up for Cole’s husband, a self-employed woodworker and contractor, the couple is behind on their bills and rent, the lawsuit said.
“What’s happened to Kori and her family is what the Congress tried to prevent. They were counting on their refund to pay their bills,” said one of the attorneys on the case, Jeffrey Dubner of the Democracy Forward Foundation, a legal services organization that’s sparred with the Trump administration. Attorneys at the National Student Legal Defense Network, an organization advocating for borrowers, are also representing Cole in the case.
Though the couple has a landlord who’s trying to work with them, Dubner said, others in their situation might not be as lucky.
Cole, in a statement, said she was counting on the money after the coronavirus outbreak closed her husband’s business for two months. “It’s only thanks to our landlord’s good heart that we’ve been able to negotiate an arrangement that doesn’t put us in serious trouble. We’re worried for ourselves and other people like us around the country,” she said.
Cole is one of many borrowers missing out on their refunds, the lawsuit says. Treasury Department information allegedly shows it offset $18.8 million from 11,049 federal tax refunds and sent the money to the Education Department, the lawsuit said.
The Education Department has been working quickly from the start with Treasury Department officials to stop all offsets and wage garnishments, said department spokeswoman Angela Morabito.
She noted that as of Thursday, “more than $2.2 billion in Treasury offsets have been refunded to more than one million borrowers.”
Treasury Department did not immediately respond to a request for comment.
Earlier this month, another lawsuit complained about ongoing wage garnishment despite official temporary halts on the practice, first by an Education Department order effective March 13, and then by provisions in the CARES Act.
There were approximately 390,000 defaulted borrowers subject to wage garnishment as of March 13, federal government lawyers said in court papers. That number dropped to 54,000 people and then to 12,000, the attorneys said in court filings.
They stressed that the Education Department has told employers to stop the garnishment — but it’s the employers who are actually taking the top off the checks for the defaulted loans.
“The [Education Department] does not control employers, as demonstrated by the fact that many employers continue to garnish wages despite the Department’s instructions to the contrary,” federal attorneys wrote.
Washington D.C. District Court Judge Carl Nichols wants to hear from the government on June 8 about its efforts to stop the garnishments and pay back people who have already had their wages skimmed.
