Publication | April 8, 2024

The Federal Student Loan Default System Keeps Families in Poverty. Here’s How to Stop It.

Our new brief explores how the federal student loan default system can plunge struggling borrowers deeper into poverty rather than helping them get back on their feet. 

Federal student loan default can come with severe consequences, including the seizure of critical family resources like the child tax credit (CTC) and the earned income tax credit (EITC). 

The devastating impact of such seizures is well documented. However, due to data limitations, past analyses have struggled to pinpoint the number and characteristics of borrowers who might be subject to these garnishments or how many borrowers have been subject to them in the past. 

To shed more light on the size of the population that is vulnerable to having their refundable tax credits seized, TICAS worked with the Tax Policy Center at the Urban Institute to examine how the population of federal student loan borrowers intersects with the population that receives refundable tax credits. 

The resulting analysis shows that at least 20 percent of the population of federal student loan borrowers (5.1 million tax units) is at risk of having their EITC and/or CTC refunds garnished. 

Access the full report to learn how the federal student loan default system perpetuates poverty and our recommendations for policymakers to better protect borrowers.