[P]aul Langevin, a self-employed vocational rehabilitation counselor in Johnson, was stunned this year to receive a letter from the Vermont Department of Taxes, letting him know the state wouldn’t be applying an adjustment to his property taxes this year.
The only explanation was that the “adjustment can be taken to pay an outstanding debt to the Department or to other state agencies.”
He called the department, which told him the adjustment had been claimed by the Vermont Student Assistance Corp. for a student loan in default. After making several phone calls to VSAC and his local lawmakers, Langevin says VSAC acknowledged it had made a mistake and sent him a check for $1,300.
The experience left Langevin feeling bitter. “I’m wondering how many other people go through this and don’t even take the time to question it,” he said.
Quite a few, as it turns out. Last year, hundreds of Vermonters saw their state income tax refund, overpayment, or property tax credit clawed back by VSAC because of a student loan in bad standing.
The Vermont Department of Taxes performed 798 tax offsets for VSAC in 2018, according to its general counsel, holding back a total of $515,262 for overdue student loans held by Vermont’s student loan authority. It’s unclear if multiple offsets might apply to the same individual.
Private lenders must go to court before they can garnish your wages or put a lien on your property for a student loan in default. And while government student loan lenders can and do sue for the same, they can also administratively seize tax refunds and credits. The IRS, for example, will often withhold income tax refunds for student loans held by the U.S. Department of Education.
VSAC, a nonprofit created by the state Legislature in 1965, provides student loans, loan servicing, and counseling to Vermonters pursuing higher education. Several states, including Massachusetts, Pennsylvania, New Jersey and Connecticut, also have similar quasi-public entities which both service federal loans and originate their own.
Joshua Cohen, a consumer rights attorney based out of West Dover who specializes in student loan debt, says VSAC’s ability to claw back debt is one of the reasons he’s often most wary of state student loans, which often combine the poor terms of private lenders with the collection powers of the state.
“They have remedies under state law which the federal government doesn’t need and private lenders don’t have,” he said.
Cohen added that lawmakers should consider eliminating the tax offset program from VSAC’s debt collection toolkit. It does the government little good, he argued, since it simply moves money from one state entity to another. And it doesn’t help the borrower either.
“It really doesn’t help pay off the debt. I would be surprised if it even covers the yearly interest,” he said.
VSAC spokesperson Sabina Haskell said the nonprofit works hard to counsel Vermonters to borrow as little as possible, and to find solutions when people fall behind.
Using the tax offset program, she said, “is something that nobody wants to do.”
VSAC cancels debt for total and permanent disability, Haskell added, and provides up to two years of deferments on its loans for documented economic hardship.
“If they run into trouble, we work closely with them to try to help get them back on track,” Haskell said of 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 Vermont’s tax department, says calls about tax offsets and VSAC are relatively rare – he’s probably gotten about two calls on the subject within the last year. He’s been sympathetic each time, he said, but the tax department “unfortunately” has basically no discretion over applying offsets.
“In general I don’t like offsets from the property tax adjustment because so many people rely on it to stay in their home,” he said.
Despite being nonprofits, and created by legislators to help their constituents afford college, loan authorities in other states have not always been the most ethical actors in the student loan business.
New Jersey’s Higher Education Student Assistance Authority made national headlines for debt collection practices so aggressive co-signers to dead borrowers still had to pay. The Pennsylvania Higher Education Assistance Agency, which services loans under the name FedLoan, is being sued by Massachusetts for its handling of the beleaguered Public Service Loan Forgiveness program.
VSAC enjoys a better reputation, and several consumer rights advocates credited it with being more reasonable and less aggressive than many of its peers. But they also argued the remedies it uses for debt collection remain overly harsh, especially for the poor.
“I think VSAC is one of the better ones, of all the servicers that I deal with,” Cohen said. “I can deal with VSAC. But at the end of the day, they have a legal right to go after the money, and they do it.”
CORRECTION: This story originally incorrectly stated that the state acknowledged the error with Paul Langevin’s property tax notification. In fact, VSAC acknowledged the error.
