How Do I Know if Student Loans Will Take My Tax Return?

Tax season is the best time of year for anyone receiving a tax return. But for student loan borrowers who have fallen behind on their federal student loans, the Internal Revenue Service could seize their tax refunds to settle the student loan debt.

Every working person or student files a tax return required by federal law. Many people hope to receive a federal tax refund. Tax refunds are payments to the taxpayer due to the taxpayer paying more tax than they owed. However, not everyone receives an income tax refund.

If you owe student loans and they are in default, the federal government could seize your taxes. For your taxes to be garnished or taken from you, your loans must default. Some or all of your tax refund may be retained (offset) by the IRS to settle your obligation. You can contact the organization you owe money to find out if your debt was filed for a tax refund offset.

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Will My Tax Refund Be Garnished?

A garnishment is a legal process carried out pursuant to a court order in a creditor's favor. If you have federal student loans but have failed to pay them, resulting in defaulting, you likely will face tax garnishment. Your federal student loans must have defaulted for your tax return to be seized.

A tax garnishment authorizes federal and state governments to offset or garnish your tax refund to collect unpaid debts. The Treasury Offset Program compares any federal payments due to you with any outstanding debt you owe the government, such as a tax refund or Social Security benefit payment. Your name and Social Security Number are matched from your tax return and outstanding debt.

How to Stop Federal Student Loans From Being Default

You can prevent your federal student loans from defaulting and being sent to student loan collections. Spend some time understanding the terms of your loan agreement and the different sorts of loans you are taking out. It's crucial to refrain from borrowing more money than you need or anticipate being able to pay it back.

If you have defaulted on student loans, you must contact the loan holder to figure out your options, like student loan rehabilitation. Student loan default can harm your credit as any past-due payments can. Borrowers should consider all their options to avoid defaulting.

The greatest choice is often student loan rehabilitation because it is the only one that can get the defaulted federal student loans off your credit report. You must make nine monthly loan payments over ten consecutive months to rehabilitate your debt.

You should be aware of when student loan repayment returns so you can avoid defaulting on your student loans.

Student Loan Payments

Contact your loan servicer immediately if you are experiencing problems making your monthly payments. Perhaps you’re facing financial hardship; contact your loan servicer and discuss your situation to see your hardship options. Often, you can opt for an income-driven repayment plan to make your monthly payments on time.

Making your payments on time will increase your credit score and is the best way to avoid defaulting. Private loans have different criteria for payment plans and past-due payments. Contact your lender to better understand your loan agreement.

Who Can Take Your Federal Tax Refunds?

Federal law prohibits individuals or private creditors from using your refund as payment for a debt; only federal and state government entities are permitted to do so.

How to Prevent Your Tax Refund From Being Seized

After you complete your tax return, you may be eligible for a refund due to tax incentives, rebates, overpaying estimated taxes, and numerous other circumstances. However, sometimes people will receive a notification from the IRS that their refund will be taken and their money will be garnished for a debt owed.

With an IRS hardship refund request, you can prevent the IRS from taking your refund. You must demonstrate that you are in financial difficulty and require the refund for a critical purpose. Your status will officially be referred to as "Currently Not Collectible," but can only be obtained through the application.

Can You Stop the IRS From Taking Your Refund?

If the IRS is planning to take your refund to pay off any outstanding debts, you may be able to stem them from doing so by taking specific actions. When the IRS plans to withhold a portion or all of your tax refund to offset an outstanding debt you owe, they will send you a notice of intent to offset.

Your last-known address will get a notice of intent once an offset occurs, informing you that the offset will start 65 days from that time. Only one notice may be given, and offsets will continue until your debt is fully paid off or the default status is lifted. By making a repayment during the 65-day window, you might be able to avoid offset. You have the right to ask for your objection to be reviewed if you have one against the debt.

Refinance Student Loans

Refinancing your student loans into one new loan at a lower interest rate can help you pay less over time or give you a longer repayment period that would lower your monthly payment.

Income-Driven Repayment Agreement

Based on your salary and family size, an income-driven repayment plan establishes your monthly student loan payment at a level that is meant to be within your monthly budget. There are four types of income-driven repayment plans for federal loans.

Deferment and Forbearance

Both enable you to temporarily delay or scale back your payments on your federal student loans. The primary distinction is that no interest will be added to your loan balance while you are in deferral. In forbearance, interest will accumulate on your loan balance.

Frequently Asked Questions About If Student Loans Can Take Your Tax Refund

You may have questions about whether your tax refund will be seized or how Bold.org can help you. Below you will find answers to some of the most frequently asked questions about whether your student loans can take your tax refund.

Can my spouse's tax refund be garnished too?

If you are married and file your taxes jointly, whether your spouse has student loan debt of their own or not, the IRS can confiscate your full tax refund.

Why does an IRS tax refund offset happen?

The IRS may withhold (tax offset) all or a portion of your tax refund if you owe back taxes from a previous tax year, debts to other federal agencies, or certain state-law debts. The Treasury Offset Program (TOP) collects past-due (delinquent) debt that people owe to state and federal organizations, such as federal student loan payments.

Which student loans can garnish refunds?

The federal student loans that can garnish your refund if you're delinquent and in default are Direct Loans, Direct Consolidation Loans, Federal Family Education Loan Program (FFELP) Loans, and Federal Perkins Loans.

Read through the article,  Should I consolidate my student loans? to learn about student loan consolidation now!