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.

Stopping And Preventing A Tax Offset

If you want to stop a tax refund offset, you need to be aware that it will take for about 6 to 9 months. To ensure that you make the right decision and actions regarding your tax offset notice from the IRS contact the Student Loan Advisory Group. As a result, you can have a professional help in putting together a financial plan to better manage your student loan debt.

A tax offset can be settled one of three ways:

  1. You do nothing. You are not required to take action, and you can opt to not fight the tax offset to allow your tax refund to settle your unpaid student loan debt. Doing so may help you catch up on payments, especially if you were expecting a sizeable refund. Following a tax offset, you should plan for alternative methods to better handing your current student loan debt and the Student Loan Advisory Group can help you to do this.
  2. Request a review. You can submit a request to challenge your offset. Typically, this option is best
    1. if you believe there is an error in how much is stated you owe,
    2. if the debts are unenforceable,
    3. if your student loans are not in default,
    4. if you are currently going through bankruptcy,
    5. if you are currently in a rehabilitation program

Also, if you believe you are eligible for the Total and Permanent Disability Discharge student loan debt relief program, then you can avoid having your income tax applied to your outstanding balance. The Student Loan Advisory Group can help you to determine if you meet the student loan debt relief program – or others – and aid you in applying for student loan forgiveness.

  1. Agree to pay the outstanding debt. You can prevent a tax offset by paying your outstanding student loan debt. The Student Advisory Group can aid you in negotiations with your student loan servicer to create payment plans that satisfy your outstanding balance while keeping you on track for your future payments (rehabilitation program). We’ll also review your situation for other forms of recourse such as default removal, student loan forgiveness, or reduced monthly payments in order to help you prevent another tax offset in the coming years.