What Are Tax Offset Student Loans?

Student loans took my tax refund: a complaint from someone who never expected they’d lose their tax refund to a student loan default. The high rate of default on student loans has become a bigger than most state agencies anticipated. Most folks assume that being a federal loan, it is relatively easier to walk away from than the normal, bank-driven loans. The truth of the matter, however, is that defaulting on your student loans can lead to garnishment of your tax refunds by state and federal agencies.

Can my federal tax refund be garnished for student loans? This is a query that we have answered more times than we could possibly think of. Yes, if you default on your federal student loans, the Department of Education can refer your account to the Department of Treasury, which will, in turn, withhold your entire tax refund to offset the amount that is owed. If you have filed a joint return with your spouse, treasury may further withhold your spouse’s tax refund even though they may have cleared all their accounts. Are income tax offset student loans legal? Yes, they are very legal, and it is sort of last resort for the government too.

Are income tax offset student loans legal

Defaulted Student Loans Tax Refund: Is It Legal?

Treasury is legally mandated to claim your refund if you have defaulted on your student loan payments unless you have some very valid reasons as to why they shouldn’t. Some of these reasons may include:

  • A previously paid debt which was effected after the offset and which might not reflect on your records.
  • An active bankruptcy.
  • A permanent physical disability.
  • Death of the loan-ee which has then been transferred to an injured spouse.
  • The debt has been refinanced or has been rehabilitated, and you are making regular payments to offset the balance with your lender.
  • The debt is not an enforceable debt, for whatever reason such as forgery or otherwise.

If you and your spouse have filed a joint return and Treasury claims a tax refund from your account, your spouse can file an ‘injured spouse’ claim with the IRS, subject to the following:

  • Your spouse has paid all income taxes and has claimed a previous tax credit.
  • Is not responsible for the debt that created the offset.

Apart from just government agencies, state guarantee agencies can also file claims for tax refunds, and they are legally mandated to enforce those claims. Can student loans take federal taxes? Better think twice before defaulting on those student loan payments.

Will The IRS Take My Refund For Student Loans If I Default?

You can challenge the offset to your account by filing a complaint and requesting a review at the address written in the offset notice. The best choice would be to see the loan file and review the offset yourself within 20 days of the notice. Most folks usually receive a rude shock when they are waiting for their tax refunds, already planning all the nice things to do with it, and instead get an offset notice in their mails. Most federal student loans will go into default after 270 days of non-payment and with no plans of clearing the loan. Most folks are ignorant of loan repayment until the first offset happens. With this information in mind, it is important to talk to your loan provider in time and see if you can renegotiate a payment plan and start rehabilitating those payments. A delinquent student loans tax refund is a reality, and once it happens, it is very difficult to come back from that situation. Stay on top of your payments, and always confirm with your service provider to make sure that you are ahead of the curve. If you feel that you might not be able to comfortably repay the loan under the current conditions, it is better to renegotiate the loan and see what works best for you.

Can Private Student Loans Garnish Tax Refund? Federal loans and private loans have their own distinct qualities, and federal loans have direct access to your taxes. Private student loans can’t touch your tax refunds unless the service provider explicitly takes legal action against you.

Question: How Can I Stop Student Loans From Taking My Taxes?

Can I get my tax refund back from student loans? This is one of our more frequently asked questions. Once the State or Treasury submits your account for a tax refund and you file a successful appeal, the account remains in default, a situation which will only be resolved through renegotiation, consolidation, rehabilitation or paying the loan in full.

Student loans in default tax refund are always a bitter pill to swallow, but the truth is the government and state are legally mandated to collect from whatever sources they feel are necessary. Garnishing loans on tax refunds can be avoided by:

  • Making regular and timely payments to your service provider
  • Contacting your provider if you’re having problems making payments

Can student loans garnish tax returns? Not just tax returns. Other federal payments to your account may be affected as well, which include:

  • Social security benefits
  • Wages for federal and military employees
  • Federal retirement benefits

The government will not hesitate to garnish loans for income tax refund. Student loans always linger and the sooner you deal with them, the better. If for example, your social security is garnished to repay some portion of the loan and this offset takes you below a certain income level which exposes you to financial hardship, you may file a review of the offset and reduce your payments to a minimal. It’s important always to remember that federal loans need to be paid; you may postpone them, but at the end of the day you’ll need to pay up.