Late on your VSAC student loans? You could lose your property tax credit

The Vermont Student Assistance Corp. in Winooski. Photo by Glenn Russell / VTDigger

Paul Langevin, an independent vocational rehabilitation counselor at Johnson, was stunned this year to receive a letter from the Vermont tax department letting them know the state would not be making an adjustment to its property taxes this year.

The only explanation was that “the adjustment can be made to pay an unpaid debt to the ministry or other state agencies”.

He called the department, who told him the adjustment had been claimed by the Vermont Student Assistance Corp. for a delinquent student loan. After making several phone calls to VSAC and its local lawmakers, Langevin says VSAC admitted to making a mistake and sent him a check for $ 1,300.

The experience left Langevin bitter. “I wonder how many other people are going through this and not even taking the time to question it,” he said.

A number, it turns out. Last year, hundreds of Vermonters had their income tax refund, overpayment or property tax credit clawed back by VSAC due to a delinquent student loan.

The Vermont Tax Department made 798 tax compensations for VSAC in 2018, according to its general counsel, withholding a total of $ 515,262 for delinquent student loans held by the Vermont Student Loan Authority. It is not known whether more than one compensation can apply to the same individual.

Private lenders must go to court before they can garnish your paycheck or put a lien on your property for a delinquent student loan. And while government student loan lenders can sue and sue for the same, they can also administratively seize refunds and tax credits. The IRS, for example, often withhold income tax refunds for student loans held by the US Department of Education.

VSAC, a non-profit organization established by the state legislature in 1965, provides student loans, loan services, and counseling to Vermonters pursuing higher education. Several states, including Massachusetts, Pennsylvania, New Jersey, and Connecticut, also have similar quasi-public entities that both manage federal loans and issue theirs.

Joshua Cohen, a consumer law lawyer West Dover-based student loan specialist says VSAC’s ability to collect debt is one of the reasons it is often wary of state student loans, which often combine poor terms from private lenders. with state collection powers.

“They have remedies under state law that the federal government doesn’t need and private lenders don’t,” he said.

Cohen added that lawmakers should consider removing the tax compensation program from VSAC’s debt collection toolbox. It does little good for the government, he argued, because it only moves money from one state entity to another. And that doesn’t help the borrower either.

“It really doesn’t help pay off the debt. I would be surprised if it even covers annual interest, ”he said.

VSAC spokeswoman Sabina Haskell said the nonprofit is working hard to advise Vermonters to borrow as little as possible and find solutions when people fall behind.

Using the tax compensation program, she said, “is something no one wants to do.”

The VSAC cancels total and permanent disability debt, Haskell added, and grants up to two years deferment on its loans in the event of documented economic hardship.

“If they’re having issues, we work closely with them to try to help them get back on track,” Haskell said of the borrowers. She added that only 2% of VSAC’s fixed rate loans become delinquent, well below regional and national averages.

Jeff Dooley, the taxpayer advocate for the Vermont Tax Department, says appeals about tax offsets and the VSAC are relatively rare – he’s probably received about two calls on the subject in the past year. He has been sympathetic each time, he said, but the tax department “unfortunately” has no discretion over the application of the offsets.

“In general, I don’t like the property tax adjustment offsets because so many people depend on it to stay in their homes,” he said.

Although they are nonprofit and created by lawmakers to help their constituents afford higher education, credit authorities in other states have not always been the most ethical actors in the lending arena. students.

The Higher Education Student Assistance Authority of New Jersey has made national headlines for debt collection practices so aggressive that co-signers towards deceased borrowers you still had to pay. The Pennsylvania Higher Education Assistance Agency, which offers loans under the name FedLoan, is being sued by Massachusetts for its management of Loan forgiveness of the besieged civil service program.

VSAC enjoys a better reputation and several consumer advocates credit it for being more reasonable and less aggressive than many of its peers. But they also argued that the remedies it uses for debt collection remain too harsh, especially for the poor.

“I think VSAC is one of the best, of all the services I deal with,” Cohen said. “I can take care of the VSAC. But at the end of the day, they have the legal right to go and get the money, and they do.

CORRECTION: This story originally incorrectly stated that the state acknowledged the error with Paul Langevin’s property tax notice. In fact, VSAC recognized the error.

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