Private Student Loans for March 2023
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Tax Refund Garnished Due to Student Loan Default? Here’s How to Get It Back

Editorial Note: The content of this article is based on the author's opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

Note that the government paused all repayment on federally held student loans during the Covid pandemic, with no loans to be held delinquent or in default. This included a halt to all garnishments, retroactive to March 13, 2020. If any of your income tax refund or other federal payment, such as Social Security, was garnished and hasn’t yet been returned to you, try contacting the Treasury Offset Program at 1-800-304-3107 as a first step.

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You may be looking forward to using a tax refund to pay down debt or stay current on bills. But if your federal student loans are in default because you haven’t been making payments for several months, the Department of Education may request that your tax refund be garnished by the U.S. Department of the Treasury in a move known as a tax refund offset, or treasury offset.

This means some or all of your tax refund would go toward paying your defaulted student loans. That said, you may be able to avoid this tax refund offset, or even get back through a tax refund offset reversal. Here are tips that may help you stop student loan tax garnishment.

Specifically, we’ll look at two cases:

How you can reverse your tax refund offset

The good news is that a tax refund garnishment should not come as a total surprise to you. You should get a tax offset notice in the mail before tax season gets into full swing, typically in the autumn, which will give you time to act if you think you have a case to challenge it. You should only get a notice like this if your loan is actually in default, which is another fact you would likely be aware of.

The notice should inform you of your right to see a copy of records related to your debt, get a review of the loan obligation and enter into a written agreement to repay your debt.

Once you get this notice, you should closely review and monitor your current student loan status. Are you actually in default, or do you think an error may have been made? Are you dealing with an extreme financial hardship? Here are some situations in which you may be able to avoid the offset.

  • You’ve filed for bankruptcy and the case is still open, or the student loan was discharged in bankruptcy (which is extremely rare but possible in cases of extreme financial hardship).
  • Your loans are not actually in default, meaning some kind of error was likely made when you received the notice. For example, someone else’s loan shows up under your name because the Social Security number attached was incorrect.
  • You have been the victim of identity theft.
  • You’ve already entered into a repayment agreement with the Department of Education and have started making payments as required.
  • You’re totally and permanently disabled.
  • Your school closed and you are eligible for a closed school or false certification student loan refund.

If any of the above apply to you, you may want to challenge your tax refund offset. If you want to freeze the tax refund offset as you challenge it, file a request for review at the address provided in the notice. This should be done by the later of 65 days following your receipt of the notice or 15 days after you request and receive your loan file, which you should do to get the full picture of what you’re dealing with. You must request that loan file within 20 days of receiving the notice.

That said, you can request a tax refund offset reversal after these deadlines, and whether the refund was already garnished or not. Still, it’s best in any case to move as quickly as possible when faced with this situation.

You’ll likely need to complete a request for review form provided by your loan servicer, which you can fill out per their instructions. You may also have to provide documentation as proof of your specific situation or hardship.

It is generally quite a bit harder to plead your case based purely on hardship than it is when there has been an error. Aside from bankruptcy, you may be able to qualify for a tax refund offset hardship refund if you are unemployed and have exhausted unemployment benefits, you are currently homeless, or you are facing eviction or foreclosure. To qualify, you will likely have to have already agreed to participate in some kind of student loan repayment program. This process also may take quite a bit of time, so you’ll need to be patient.

If you do qualify for a tax refund offset hardship exception, you may not ever be able to get one again.

If you are making the request for review after the tax refund offset has already happened, you will appeal to the Department of Education.

You can contact the Treasury Offset Program at 800-304-3107 for more information.

Avoiding or reversing a tax offset after you’ve been put on notice may not be an easy process, and there is no guarantee you will be successful in your efforts. But if you believe you have a good case, you should try.

How to avoid a tax offset in the first place

Financial hardship can impact anyone. But there are many ways you can avoid having to deal with a tax refund offset in the first place. Student loans are a type of debt that offers benefits many other loans do not, particularly if you are struggling financially. It is much easier than you might think to completely avoid default, which means you’ll never have to worry about your tax refund being garnished (not to mention the negative effect default will have on your credit score).

1. Make your student loan payments on time

It takes 270 days of nonpayment on federal student loans before official default status kicks in, although you are delinquent as soon as you miss one payment. Making minimum payments on time is the main thing you can do to stay out of default. However, if this isn’t possible due to any number of financial struggles you may be experiencing, you have several options.

2. Consider deferment or forbearance

If you know you can’t make minimum payments on time, you can try deferring your loans. When your loans are deferred, you can generally postpone payments for up to three years.

You also can consider another federal repayment option called forbearance. This is similar to deferment but has different eligibility rules. Forbearance pauses your loan payments for up to one year. Keep in mind that interest continues to add up during the forbearance period.

Depending on your loans, interest also can accrue if you’re in deferment, so do your research. You can use a student loan deferment calculator to further explore this option.

You may also be able to qualify for an income-driven loan repayment program, including pay as you earn and income-contingent repayment plans.

3. Consolidate or refinance your student loans

Another way of avoiding default is to consolidate or refinance your student loans. Both options can help you keep your loan payments low and will move you toward making one payment, rather than multiple payments, per month. Depending on your loans, you could qualify for low interest rates through refinancing.

You should always check to see if you’ll lose any federal protections by refinancing with a private lender. This is one potential risk of refinancing student loans, so be sure you understand everything involved.

4. See if you qualify for a student loan forgiveness program

If you work in public service, education, health care or any other kind of helping profession, you may qualify for a student loan forgiveness program. This means a portion or even the full amount of your student loans may be paid off. Check out this article to see if you might be eligible for any of these programs.

Holding on to your tax refund

It can be tempting to put off paying your student loans, especially when you have other pressing bills. But doing so can put a huge damper on your finances and your credit, especially if you end up defaulting.

Do your best to avoid defaulting on your student loans and ending up in a tax offset situation. Getting your money back through a tax refund offset reversal might be difficult, depending on your circumstances. That said, it isn’t necessarily a hopeless situation, and if you find yourself facing a tax offset, you should make the effort to see if you can reverse it.

One good thing that can come out of dealing with a tax refund offset is that it can inspire you to get out of student loan default and move toward rehabilitating your financial situation. Check out LendingTree’s full guide on student loan default and how to get out of it, and see our story on one borrower who went from default to almost debt-free.


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