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A class action lawsuit has been filed against the U.S. Secretary of Education Betsy DeVos and the Department of Education over claims that student tax refunds were seized despite the coronavirus.
According to the plaintiffs, the Treasure Department and the Department of Education were prohibited from seizing tax refunds to pay overdue student loans as a part of coronavirus federal relief. This moratorium started as a 60 day executive order but was later codified and expended through Sept. 30.
However, the departments and their heads – Steven Mnuchin and Betsy DeVos – allegedly violated these regulations by withholding nearly $19 million in tax refunds from 11,049 student loan borrowers.
“Despite ED’s announcement that it would stop offsetting tax refunds and the unambiguous requirements of the CARES Act, ED and Treasury have continued to offset tax refunds,” the Department of Education class action lawsuit claims.
“ED and Treasury illegally offset Named Plaintiff Kori Cole’s federal tax refund to collect on a student loan and, to date, have not returned the money that is owed.”
The coronavirus has had a significant impact on the economic wellbeing of many Americans. People have lost their jobs and may face significant expenses if they get sick.
The Department of Education class action lawsuit notes that, “[e]ven before the COVID-19 pandemic, many student loan borrowers who defaulted on their student loans were in 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 Department of Education class action lawsuit adds.
The federal government sought to relive some of this pressure by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As one part of the act, the Department of Treasury and the Department of Education were prohibited from collecting on student loans by garnishing tax refunds or wages.
Despite these regulations, plaintiff Kori Cole says that she had her federal tax return illegally offset in order to pay her student loans.
“The CARES Act’s reprieve from offsetting tax refunds was supposed to provide financial relief to Ms. Cole and others like her during the pandemic,” the Department of Education class action lawsuit notes.
Cole, whose husband’s custom woodworking business is the family’s sole source of income, was reportedly eligible for a CARES Act tax refund of $6,859 after the coronavirus caused the business to produce nearly no income for six to eight weeks.
“Ms. Cole and her family were planning to use their federal tax refund to help pay their monthly living expenses, such as rent, utilities, and food,” the Department of Education class action lawsuit contends.
“Because of the impact the COVID-19 pandemic has had on Ms. Cole’s husband’s business, their family is behind on their rent and other monthly bills.”
Despite the plans the family of four had to cover their living expenses and other costs, they were allegedly unable to do so when the full refund was offset to pay for Cole’s defaulted student loans.
According to the plaintiff, the theft of their federal tax refund has left them in a financial crisis, unable to cover their bills or buy necessities.
Cole seeks to represent a Class of student loan borrowers – for loans issued or held by the Department of Education – who had their federal tax refunds seized to pay for their debts between March 27, 2020 and Sept. 30, 2020 and whose offset tax refunds have not been fully returned.
According to Cole, Department of Treasury documents show that more than 11,000 federal tax refunds were offset by the Department of Education in April alone – meaning that there could be thousands of putative Class Members.
The Department of Education class action lawsuit seeks the return of these offset refunds, suspension of further offsets, compliance with the CARES Act, and other relief.
“Congress recognized how damaging it would be to let student loan debt take precedence over people’s needs,” plaintiff’s attorney said in a statement, according to The Washington Post. “And now the Trump administration’s failure to implement the Cares Act is putting thousands of people at risk.”
Have you had a tax refund withheld by the Department of Education? Share your experiences in the comments section below.
Cole and the proposed Class are represented by Daniel A. Zibel, Eric Rothschild, and Alice W. Yao of the National Student Legal Defense Network along with Jeffery B. Dubner and Sean A. Lev of the Democracy Forward Foundation.
The Department of Education Tax Refund Seizure Class Action Lawsuit is Cole v. Steven Mnuchin, et al., Case No. 1:20-cv-01423, in the U.S. District Court for the District of Columbia.
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13 thoughts onStudent Loans Class Action Says Tax Refunds Unlawfully Retained During COVID-19
ADD ME PLEASE! The IRS has been holding my refund all year&I was finally suppose to get my tax refund from 2019 on February 5, 2021. Instead my refund was offset to the fed student loan. I was told to call the treasury, then the dept of education. No one has returned my call. I am desperate for my refund as a single mother of 2 who lost her job due to covid&now my Bill’s are so far behind, I was counting on my refund to pay off back rent&utilities just for survival. I am livid this happened!