If you typically receive a tax refund ever year but have defaulted on your student loans since the last tax season, you should begin to brace yourself for the chance of having your tax refund seized by the IRS to satisfy your missed student loan payments. The Department of Education will submit a request to the IRS to have your income tax offset to collect on your unpaid student loan debt. The entire tax refund will be collected and applied towards any outstanding student loan debt
What is a tax offset? Is it legal? Will I know about it before it’s too late?
A tax offset is a request by a lender to seize a borrower’s tax refund in order to pay off unpaid debts. Typically, if you are making your monthly payments on time, even just the minimum, you won’t have to worry about a tax offset. Tax offsets are requested when a borrower has not paid their debt over a significant period of time and has defaulted on their student loans.
Any form of collections by the federal government, including the Department of Education through which many student loans are made, such as wage garnishment or tax offset, do not require permission from the courts to levy this collection action against you.
Although permission is not required, the IRS will notify you in writing that your tax refund will be used to pay off your debts and the remaining amount, if any, will be returned to you.