Can Stimulus Checks Be Seized to Repay Defaulted Student Loans?
The government is sending stimulus checks to many Americans to help ease the financial strain of the coronavirus pandemic. Unfortunately, the recovery rebate checks may be seized to repay defaulted student loans in some circumstances. Learn how to protect your stimulus benefit payments.
People will receive direct deposit or mailed checks for $1,200 for individuals earning under $75,000 per year. For married couples, it’s $2,400 for adjusted gross incomes under $150,000. Reduced checks will go out to individuals making up to $99,000 per year or couples making up to $198,000 per year.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) stops the garnishment and offset of stimulus checks to repay defaulted student loans.
The U.S. Department of Education has halted collection efforts on all defaulted loans, including wage garnishment and the Treasury Offset Program, through September 30, 2020. An offset reduces the amount of money the borrower would otherwise receive.
The offset of Social Security disability and retirement benefit payments, the offset of federal income tax refunds and the garnishment of wages has been suspended. The recovery rebate can be reduced to repay unpaid child support, but not defaulted federal student loans.
This suspension applies to all private collection agencies under contract to the U.S. Department of Education.
But, private collection agencies can seize stimulus checks to repay defaulted private student loans and other debts.
If the lender has a court judgment against the borrower, they can issue a bank levy to grab the money soon after it hits the borrower’s bank account.
Some states are blocking this, but most don’t.
Borrowers who are at risk of having their recovery rebate checks seized can withdraw the money in cash as soon as possible after it is direct deposited before a bank levy can be executed. If you leave the money in a bank account, it can be seized by private debt collectors.
When collection efforts resume on October 1, 2020, private collection agencies can obtain a bank levy against any money remaining in the borrower’s bank account.