Borrowers with federal student loans in default no longer need to worry about their child tax credit benefits being garnished for the 2021 tax season, the Department of Education confirmed last week. According to Education Secretary Miguel Cardona, this applies to tax refunds issued even after the student loan payment break ended in May. Here’s what to know about this week’s student loan trends.
1 student loan trend for the week of February 14, 2022
1. Child tax credit refunds will not be garnished for student loan debt
Last week, the US Department of Education confirmed that borrowers who have delinquent student loan debt will not have their child tax credit garnished when filing taxes for 2021.
Normally, the government can withhold tax refunds to pay off outstanding federal student loan debt. However, as part of the federal student loan forbearance period, this requirement is suspended until May 1. The latest announcement from Education Secretary Miguel Cardona confirms that the Child Tax Credit will be protected even for refunds issued after this date.
“The child tax credit should be accessible regardless of your student loan repayment status,” Cardona wrote:. “[The Department of Education] will ensure that families who have student loans in default will NOT see #CTC benefits foreclosed – even for refunds issued after the payment pause ends.
How it affects student loans
Eligibility for the child tax credit could significantly reduce your tax burden for the 2021 tax season. Now, even if your federal student loan is in default, your refund will be safe from garnishment.
That said, the May 1 end date for the student loan payment break is fast approaching, and having student loans in default affects more than your taxes. If you’re worried about starting to pay again or need help getting out of a default, it’s best to start planning now. student loan counselors, nonprofit organizations, and even your student loan manager can all help you decide if a different repayment plan is right for you.
Take away key
If you have federal student loans in default, your child tax credit benefits will not be garnished for the 2021 tax year.
Here’s how you can prepare
Whether you’re new to student loans or in the process of repaying, it’s wise to stay informed about how your student loan rates might change. In 2022, more opportunities for cheaper loans or loan forgiveness may open up; keep an eye on the Bankrate student loan news hub for the latest trends.