Can Student Loans Take My Tax Refund?

If you default on a federal student loan, the government can take your tax refund to help cover what you owe. Here's what you need to know and what you can do to prevent tax garnishments.

» MORE: Your guide to filing taxes with student loans

Will your tax refund be garnished?

Only federal student loans in default (as well as funds owed to other federal agencies and overdue child support) are subject to tax refund collection. The government can’t take refunds to repay private student loans in default.

Federal student loans typically enter default after 270 days of past-due payments. However, if you are behind on your payments for 90 days, the loan servicer will report the delinquency to the three major credit bureaus, which could damage your credit rating.

If your tax refund is subject to garnishment, you’ll receive a letter from the Bureau of the Fiscal Service (BFS) at least 60 days in advance (65 days for student loans) saying it is referring your account to the Treasury Offset Program, or TOP. This is the part of the U.S. Treasury Department tasked with taking federal payments to cover delinquent debts owed to government agencies, including defaulted student loans.

Your student loan servicer will send you a tax offset notice before your refund is seized. This notice typically arrives months before you file your tax return, so you have time to take action. But you might receive that notice only once, so be sure to act right away.

Check that your loan holder has your up-to-date contact information. Not sure who your loan servicer is? Contact the Education Department's Default Resolution Group or log into your account on 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 depending on your situation, as well as the records you’ll need to support each:

• If you repaid some or all of the debt. If you fully repay the debt during the 65-day period after you receive your offset notice, you should receive your entire refund. If the amount listed on your offset notice is incorrect, you can dispute it. Fill out the Request for Review form that came with your offset during the 65-day period with all requested information. Be sure to provide copies of checks or money orders used for payment to your student loan holder, as well as receipts for payments made.

• If you do not owe the debt. Your student loan can be discharged for reasons including 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 have never taken a student loan, don’t ignore an offset letter — it’s possible you’re a victim of identity theft.

• If you already agreed to make payments. If you're fulfilling a repayment agreement with your loan servicer — which includes making payments within 65 days of receiving an offset notice — then your refund should not be garnished. Provide a copy of the agreement, as well as checks, money orders or receipts that document repayments.

• If you’re enduring 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, are facing eviction or utility shutoff, can’t pay for your medical treatment or had your house foreclosed, for example. To qualify, you may need to start loan rehabilitation or voluntarily enter a repayment plan.

Once an offset notice is sent, you have 65 days to contest it. You may still be able to stop an offset after 65 days by entering into a rehabilitation agreement and making five of the nine required payments. Your offset notice will list instructions for setting up a review.

» MORE: 14 student loan forgiveness, cancellation and discharge programs

What happens if you don't stop a tax offset?

Your student loan holder will seize your tax refund — and future refunds — until the tax offset stops.

Rehabilitation and consolidation can get your loans back in good standing. Both also stop other consequences of default, like wage garnishment. You just have to make payments on time as you agreed.

If you missed your review window or already had your refund seized, you should still contact your loan servicer to see under what circumstances you can receive some or all of your money back.

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.