Borrowers with defaulted federal student loans no longer have to worry about their child tax credit benefits being seized for the 2021 tax season, the Education Department confirmed last week. According to Education Secretary Miguel Cardona, this applies to tax refunds issued even after the student loan payment pause ends in May. Here’s what to know about this week’s student loan trends.

1 trend within student loans for the week of Feb. 14, 2022

1. Refunds from the child tax credit will not be garnished for student loan debt

Last week, the U.S. Department of Education confirmed that borrowers who have past-due student loan debt will not have their child tax credit seized when filing taxes for 2021.

Normally, the government may withhold tax refunds to satisfy defaulted federal student loan debt. However, as part of the federal student loan forbearance period, this requirement is on hold through May 1. The latest announcement from Education Secretary Miguel Cardona confirms that the child tax credit will be protected even for refunds issued after that date.

“The Child Tax Credit should be accessible, no matter your student loan repayment status,” Cardona wrote. “[The Department of Education] will make sure families who have student loans in default do NOT see #CTC benefits garnished – even for refunds issued after the payment pause ends.”

How this affects student loans

Qualifying for the child tax credit could decrease your tax burden significantly 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 pause is fast approaching, and having defaulted student loans affects more than just your taxes. If you’re worried about starting up payments again, or need help getting out of default, it’s best to start planning now; student loan advisors, nonprofit organizations and even your student loan servicer can all help you decide if a different repayment plan is right for you.

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Key takeaway
If you have defaulted federal student loans, your child tax credit benefits will not be seized for the 2021 tax year.

Here’s how you can get prepared

Whether you’re new to student loans or well into repayment, it’s wise to stay informed about how your student loan rates could change. During 2022, more opportunities for cheaper loans or loan forgiveness could open up; keep an eye on the Bankrate student loans news hub for the latest trends.

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