Feds Accused of Holding Back Tax Refunds Over Student Debt

The complaint mirrors another lawsuit filed two weeks ago over wage garnishments.

Education Secretary Betsy DeVos speaks during a March 2019 meeting of a House Appropriations subcommittee on Capitol Hill in Washington. (AP Photo/Andrew Harnik)

WASHINGTON (CN) — The Trump administration has kept up collecting on federal student loan debt during the Covid-19 pandemic by withholding urgently needed tax refunds, according to a lawsuit filed Friday in Washington federal court.

Congress, through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, had ordered the Education Department to suspend collection for six months to ease the economic blow dealt by the novel coronavirus outbreak. The complaint argues the executive branch has failed to follow the unambiguous order for relief to borrowers already suffering from financial distress. 

“The economic fallout from the pandemic has had a significant and harmful impact on those defaulted student loan borrowers, making their financial situations even more precarious,” the complaint states. 

Kori Cole, the lead plaintiff in the class action, claims she is one of thousands of borrowers fighting the Treasury Department for the full money owed on her 2019 tax return. With her family already living on just around $50,000 a year, the sole income from her husband’s woodwork shop in Arvada, Colorado, is now in jeopardy due to the slowdown in business caused by Covid-19.  

With two children, Cole and her husband had planned to fall back on their full federal tax refund of $6,859 to pay for living expenses.

“However, their federal tax refund was offset in full to pay Ms. Cole’s defaulted student loans, in violation of the CARES Act. As a result, Ms. Cole and her family are behind on their rent and bills,” the complaint states. 

Borrowers filed a similar lawsuit earlier this month in the same court alleging the Education Department has continued collecting student loan debt through wage garnishments. The National Student Legal Defense Network is representing the plaintiffs in both legal battles. 

Alex Elson, senior counsel for the legal advocacy group, focused on the human cost of the failure by the administration to follow Congress’ directive, while the Education Department claimed it was instructing thousands of employers to stop wage garnishments. 

“For borrowers already worried about affording rent, groceries, and medication, losing part of each paycheck to an unlawful garnishment is enough to push them into truly dire circumstances,” Elson said in a statement on May 12. 

In that class action case, Elizabeth Barber, a 59-year-old home health aide, said she lost up to 15 hours of work per week during the pandemic but still saw her wages garnished in March and April. A second plaintiff, Craigory Lee A. Jenkins, saw her May paycheck from Lowe’s Home Improvement docked. 

“The CARES Act’s reprieve from wage garnishment was supposed to help named plaintiffs and the class — immediately,” the complaint in the parallel legal battle states. 

The Department of Education and the Treasury Department did not respond to requests for comment on the case filed Friday against the agencies. 

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