Lawsuit accuses Trump administration of illegally seizing tax refunds from student loan borrowers

A class-action lawsuit filed Friday is accusing the Trump administration of illegally seizing student loan borrowers’ tax refunds even after Congress halted government debt collection amid the coronavirus pandemic.

The lawsuit filed in federal court in Washington by the groups Student Defense and Democracy Forward accuses Treasury Secretary Steven Mnuchin and Education Secretary Betsy DeVos of defying Congress’s mandate and seizing money that student loan defaulters desperately need.

“In the middle of this devastating pandemic, Secretary Mnuchin and Secretary DeVos have been illegally offsetting tax refunds of student borrowers despite clear instructions from Congress and the President to stop,” Alice Yao, a lawyer with Student Defense, said in a statement. “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.”

The departments of Treasury and Education did not immediately respond when asked for comment.

The lawsuit was filed on behalf of Kori Cole, a Colorado woman whose family tax refund of nearly $7,000 was seized in April to go towards her defaulted student loans.

“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,” her lawyers wrote in their complaint. “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.”

The Department of Education can request that the Department of Treasury offset tax refunds for those who owe money on their student loans, and the federal government has agreements with most states that allow them to offset state tax refunds as well.

But under the CARES Act signed into law in March, the Treasury Department was forbidden from conducting any involuntary debt collection until September, including seizing any tax refunds.

In March, after President Trump declared a national emergency over the pandemic, DeVos ordered a halt to tax refund offsets and for $1.8 billion that had been seized from borrowers to be returned.

It’s not entirely clear how many student loan borrowers are still having their refunds offset, but the lawsuit cites a statistic on the Treasury Department’s website that appears to show that it has collected $18.8 million from about 11,000 tax refunds since April 1.

— Updated at 2:55 p.m.