Defaulting on federal student loans means your loan holder can seize your state and federal tax refunds. You can stop student loan tax garnishment, but you need to act fast and have a reason — such as the debt isn’t yours or you’re actively repaying it.
After your refund has been garnished, you can still contact your loan holder to see if it will return some or all of the money to you. Loan holders have different standards for reversing garnishment, but you’ll likely have to start making payments again to get them to act.
Will your tax refund be garnished?
You must have federal student loans in default to have your tax refund garnished. 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 part of the U.S. Department of the Treasury, and it’s 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 an offset notice before your refunds are seized so you have time to take action. Typically, your notification letter will arrive months before tax time.
Your loan holder will send you an offset notice before your refunds are seized so you have time to take action. Typically, your notification letter will arrive months before tax time. For example, if your 2018 refunds are subject to garnishment, you likely would have heard from your loan holder in fall 2018. The Treasury Department will contact you after the seizure occurs.
You cannot 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, access the National Student Loan Data System online. This is the Department of Education’s central database of federal student loan records.
How to challenge tax refund garnishment
Once the 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 from your loan holder. Once it sends your records, you have 15 additional days to request a formal review of your case.
Your offset notice will list instructions for setting up a review with your loan holder. If you have questions about this process, you can also contact TOP directly at 800-304-3107.
For your review, you’ll need to provide your loan holder with a written statement and proof supporting your claim. Your loan holder will conduct its review based on this information. You can request an in-person or telephone hearing if you believe your written submission doesn’t fully explain your situation.
Reasons to request a formal review
You must have a valid reason to challenge your student loan tax garnishment. Here are the best cases for requesting a formal review, as well as the records you’ll need to support each:
Provide copies of: Checks or money orders used for payment, as well as receipts for payments made.
If you never took out a student loan, don’t ignore an offset letter. It’s possible you’re a victim of identity theft.
Provide copies of: Completed loan discharge applications. In the case of bankruptcy hearings, you’ll need court documents and discharge orders.
If you have federal loans in default, you may have entered a payment agreement to consolidate or rehabilitate them. If you are fulfilling the required terms outlined in that agreement, your refund should be returned.
Provide copies of: Your payment agreement, as well as checks, money orders or receipts that document payments.
To qualify, most loan holders will want you to start the rehabilitation process or enter a repayment plan voluntarily.
Provide copies of: Documentation that supports your hardship claim. Contact your loan holder for its specific processes and policies.
What happens if your review isn’t successful?
Your student loan holder will be able to seize your tax refund — and your future refunds — until it stops the garnishment. It will stop if you enter into a payment arrangement that removes your loans from default and stick with it.
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 offset. You just have to make payments in line with your agreement.
If you missed your review window or already had your refund seized, you can still work with your loan holder. Contact it to see under what circumstances you can receive some or all of your money back. Loan holders have their 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.