The U.S. Department of Education is under fire at the moment. It has failed to alert tens of thousands of student loan borrowers of impending offsets on their tax refunds. This issue has sparked concerns among lawmakers regarding the accuracy of the department’s data on borrowers’ outstanding balances and contact information. Almost 10 million student borrowers are either already in default or have a high risk of defaulting soon. The stakes of these failures are high.
Additionally, the U.S. Department of Education has the discretion to inform borrowers to avoid offsets. They are mandated to do so at least two months ahead of time. Lawmakers should be alarmed. They are concerned that the department could go as far as to accept long-expired notifications—some dating back years and published prior to the pandemic—for this requirement. This is a concerning practice and leads to the further question of whether borrowers are being fully educated on how their tax refunds are at risk.
The Department of Education’s recent staff cuts are only exacerbating the issue. These cuts hit the Federal Student Aid office, a predictable result of the Trump administration’s actions. In March, the company laid off nearly half of its employees. This sudden shift made many worried about the department’s capacity to adequately communicate with borrowers. This cut in staff might help explain why borrowers aren’t receiving notifications until the last minute.
These issues were articulated by lawmakers in a joint letter to the Department of Education’s Secretary, U.S. Linda McMahon. Additionally, they highlighted the need for renewed notices to be issued. These notices should account for any life changes borrowers might have faced since the last notice they received.
“Many borrowers have likely gotten married; moved across state lines; become parents of dependent children; or have suffered drastic misfortunes that aren’t reflected in their individual profiles with the now-gutted FSA,” lawmakers stated.
The Department of Education’s website outlines a 65-day period for borrowers to take action upon receiving a notice of intent to offset. Many lawmakers have expressed their view that this is an insufficient timeframe. They contend that we should be doing much more to ensure borrowers are truly ready.
“The purpose of that 60-day notice is to equip the student borrower with the necessary information to prevent the seizure of their tax refund or Social Security benefits,” they added.
That’s highly unusual, noted higher education expert Mark Kantrowitz. He pointed out that there has never been a delay like that between notification and offset.
“There is no precedent where there was a delay of several years between the time the U.S. Department of Education issued a notice of intent to offset and when the offset occurred,” Kantrowitz explained.
The consequences of these breakdowns in communication go well beyond implementation hiccups. Without transparent communication, borrowers could be blindsided by developments that may lead to a financial burden, such as a seized tax return. The Department of Education, along with other creditor agencies, collaborate in enforcement. Jointly, they help borrowers to receive accurate, timely notices about possible offsets.
As Congress gets a closer look at the Department’s missteps, they are calling for deeper accountability and better outreach efforts. Second, they plead for a more nuanced understanding of borrowers’ situations. Understanding the complexities of the borrower experience is key to effective student loan management and avoiding avoidable financial distress.