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If you default on a federal student loan, your tax refunds can be taken to help cover what you owe. However, the government has paused this program and other collection activities as part of a broader pandemic relief effort.
Federal student loan payments are also paused until as late as summer 2023 while the Supreme Court prepares a final decision on President Biden's broad student debt cancellation program.
After that relief ends, the best way to stop student loans from taking your refund is to address the default before filing your tax return. Once your money is gone, it's much harder to get it back.
Are tax refunds not being taken due to the pandemic?
Collection activities are currently paused for all federal student loans and commercially held FFELP debt, which could protect your 2022 refund. In addition, the Education Department plans to allow borrowers with loans in default to re-enter a repayment plan in good standing once student loan payments resume, in an initiative known as Fresh Start. This would prevent tax refund garnishment when collection activities restart.
Relief checks issued due to the pandemic also aren't being taken for defaulted federal loans. But your check could be at risk if a judge has allowed a lender to garnish your bank account due to a defaulted private student loan.
Will your tax refund be garnished?
Only federal student loans in default can subject your tax refund to garnishment. Federal student loans enter default after 270 days of past-due payments. Private student loans in default aren't eligible for tax refund garnishment.
If your tax refund is subject to garnishment, you’ll receive a letter from your loan holder saying it has referred your account to the Treasury Offset Program, or TOP. This is the part of the U.S. Department of the Treasury tasked with taking federal payments to cover delinquent debts owed to government agencies, such as past-due child support and defaulted student loans.
Your loan holder will send you a tax offset notice before your refunds are seized. This typically happens months before you file your return, so you have time to take action. But you might receive that notice only once.
For example, say you had a loan default in January 2020. By November, you likely would have heard that your 2020 refund would be offset — though the garnishment might not have happened because of COVID-19 relief measures.
You can't dispute tax garnishment on the grounds of not receiving the offset notice. Check that your loan holder has up-to-date contact information for you. If you're not sure who holds your loans, log in to your account at studentaid.gov. The Treasury Department will contact you after the offset.
How to stop student loan tax garnishment
Here are the best ways to stop student loan tax garnishment, as well as the records you’ll need to support each:
You repaid some or all of the debt. If you already fully repaid the debt, you should receive your entire refund back. If the amount listed on your offset notice is incorrect, you may receive some money back depending on how much you still owe. Provide copies of checks or money orders used for payment to your student loan holder, as well as receipts for payments made.
You do not owe the debt. Your student loan has been or will be discharged for reasons such as bankruptcy, total and permanent disability or school fraud. You'll need to provide copies of completed loan discharge applications or court documents and discharge orders to your student loan holder. If you never took out a student loan, don’t ignore an offset letter — It’s possible you’re a victim of identity theft.
You already agreed to make payments. You have a formal agreement with your loan holder and made payments within 65 days of receiving your offset notice. If you are fulfilling that agreement — provide them a copy of it, as well as checks, money orders or receipts that document payments — your refund should be returned.
You are enduring a financial hardship. Student loan holders have different standards for hardship relief. Some agencies may return all or part of your tax refund if you can prove you've exhausted unemployment benefits or had your house foreclosed, for example. To qualify, most will want you to start the rehabilitation process or enter a repayment plan voluntarily.
Once an offset notice is sent, you have 65 days to contest it. If you think the garnishment is based on inaccurate information, you have a 20-day window to ask for your records. Once your loan holder sends your records, you have 15 additional days to request a formal review.
Your offset notice will list instructions for setting up a review. If you have questions about this process, you can also contact TOP directly at 800-304-3107.
What happens if you don't stop a tax offset?
Your student loan holder will be able to seize your refund — and your future refunds — until the tax offset stops.
You can get federal student loans back in good standing through rehabilitation and consolidation, which will also stop other consequences of default like wage garnishment. Rehabilitation takes longer to complete, but you don’t have to finish the process to prevent future garnishment. You just have to make payments in line with your agreement.
If you missed your review window or already had your refund seized, you should still contact your loan holder to see under what circumstances you can receive some or all of your money back. Each agency can have its own policies for these situations.
Will my spouse’s refund be garnished, too?
If you’re married and file taxes jointly, you may be able to protect your spouse’s part of the federal tax refund by submitting an injured spouse allocation form (IRS Form 8379).
You can provide this form when you file your taxes or afterward if you weren’t aware of the offset at the time. You may have as long as three years from the due date of your original return to submit this paperwork.
You may also be able to prevent student loan tax garnishment for your joint state return. Those rules depend on where you live. Check with your state’s department of taxation to learn more.