LSNYC Protects Student Loan Borrowers’ Tax Refunds

Each year, millions of Americans who have taken out loans to fund their education receive a notice in the mail from the federal government. The letter, filled with confusing technical and legal terms, tells borrowers that the government will take their tax refunds — and even a portion of their Social Security payments — unless they take action.

Until last year, those letters confused many borrowers into thinking that they had to sign up for a costly installment plan — one they couldn’t afford. 

These payment plans forced thousands of people to accept reduced tax refunds, eating into their income and savings. The government has collected nearly $2 billion a year in recent years by cutting into working class Americans’ tax refunds. 

“Money is tight and I wasn’t expecting the government to take my tax refund,” said. Saibou Sidibe, an LSNYC client. “All my plans changed when we found out the money was gone. We were planning a trip to see family at the time and it was very frustrating.” 

When student borrowers like Sidibe came to LSNYC for help, our advocates realized that the letters notifying them about the payment plan were hiding a key piece of information. Many of these borrowers were actually eligible to bring their loan out of default — and would face monthly payments of exactly zero dollars for the remainder of their loan period. 

LSNYC sued the U.S. government for misinforming millions of borrowers and eventually forced the government to include language on notices informing borrowers that they can consolidate their loans for $0 payments, and, in plain English, that other forms of payment plans could eat away at their tax refunds. 

LSNYC clients received settlements worth thousands of dollars each. 

“Money is tight and I wasn’t expecting the government to take my tax refund. All my plans changed when we found out the money was gone. We were planning a trip to see family at the time and it was very frustrating. But I’m thankful to Legal Services NYC and happy to get the money back. It was a big relief and will help us plan for the future, including making sure our kids can have a Christmas this year.”

Saibou Sidibe, an LSNYC client who will receive nearly $3,000 from the settlement

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