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Student Debtor Says Treasury Shouldn't Garnish Tax Refunds

By Dylan Moroses · 2020-05-29 14:01:35 -0400

The U.S. Treasury continues to reduce federal tax refunds to pay off delinquent student loan debts despite prohibitions on such collections during the COVID-19 pandemic, a Colorado woman told a D.C. federal court Friday in a proposed class action complaint.

The Treasury Department, in coordination with the U.S. Department of Education, is still offsetting federal tax refunds to collect on student loan debts despite passage of the Coronavirus Aid, Relief and Economic Security Act , which temporarily suspended that practice, Kori Cole said in her complaint.

The suspension was part of a greater effort to help businesses and families endure the economic crisis caused by the novel coronavirus pandemic, Cole said. The coronavirus causes the respiratory disease COVID-19.

"The departments' offset of federal tax refunds, and their failure to return these funds, is causing material and immediate harm to Ms. Cole and other members of the proposed class, as well as thwarting the purpose of the CARES Act to provide fast, direct relief to student loan borrowers during the current national emergency," the complaint said.

The CARES Act was signed into law by President Donald Trump in March and suspended the practice of using federal tax refunds to help satisfy taxpayers' student loan debt obligations until at least Sept. 30. The law also directed the Internal Revenue Service to send direct stimulus payments to most Americans and had other tax provisions to help businesses meet payroll and retain employees.

Despite that law, Treasury data available online on "offset collections" reflects that it has offset more than $18.8 million from more than 11,000 federal tax refunds since April 1 and sent the funds to the Education Department to satisfy student loan obligations, according to the complaint.

Cole expected a tax refund of almost $6,900 for her latest joint return filed with her husband, but Treasury collected the refund in full and put it toward her student loan debt, even though the CARES Act's prohibition was in effect, according to the complaint.

Even if the government were to refund Cole the full amount, she and others in her situation would continue to suffer during the pandemic, the complaint said. Cole's family was planning to use their refund for paying bills and for other essentials, according to the complaint. The coronavirus pandemic has adversely affected her husband's business and compromised the family's ability to meet their financial obligations, Cole said.

Cole asked the court for a judgment that Treasury acted unlawfully by offsetting the refunds to pay student debts and for an order requiring the government to follow the law by suspending the practice. Cole also requested that the federal government return federal tax refunds immediately to those who had them withheld to offset student loan obligations and notify the court when it has done so.

The complaint is designed to hold the Trump administration accountable and to make sure that families are getting the relief they need, Cole's attorney, Alice Yao of the National Student Legal Defense Network, said in a press release.

"The administration has shown an utter disregard for the law and the needs of student loan borrowers during this difficult time, and their botched rollout of CARES Act protections is causing real suffering for families across the nation," Yao said.

Representatives for the U.S. government didn't immediately respond to a request for comment.

Cole is represented by Jeffrey B. Dubner and Sean A. Lev of the Democracy Forward Foundation and Daniel A. Zibel, Eric Rothschild and Alice Yao of the National Student Legal Defense Network.

Counsel information for Treasury Secretary Steven Mnuchin and the U.S. government wasn't immediately available.

The case is Kori Cole v. Steven Mnuchin et al., case number 1:20-cv-01423, in the U.S. District Court for the District of Columbia.

--Editing by Neil Cohen.

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