Q: How can I stop student loans from taking my taxes?

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You can stop student loans from taking your tax refund by getting your loans out of default. There are three ways to do that:

  • negotiating a federal student loan settlement
  • applying for a Direct Consolidation loan
  • entering into the loan rehabilitation program

Most student loan borrowers can’t afford a federal student loan settlement. They’re expensive. You’ll typically settle a federal student loan for no less than 85% of the current loan balance. And that money’s payable in 30 to 90 days.

Loan consolidation gets you out of student loan default fast. It takes less than 3 months for the loan consolidation process to complete. But when you consolidate, the collection fees and accrued interest are capitalized. Student loan interest capitalization causes your loan balance to balloon.

Loan rehabilitation gets you out of default in about 9 months. To be 100% sure your tax refund won’t be offset, you would want to wait until you complete the loan rehabilitation program before you file your tax return.

#1 Can filing bankruptcy stop tax offset?

Filing bankruptcy can stop your tax refund from being offset for defaulted student loans. Bankruptcy law has an automatic stay from collection activities. A tax refund offset is a collection activity. If you file your bankruptcy case before the money is deposited, the automatic stay should protect your refund.

So act fast when you get this debt offset notice:

“Your refund has been applied to a past-due obligation such as child support, another federal agency debt, or state income tax. The Bureau of the Fiscal Service (BFS), who issues IRS refunds, will send you a notice informing you of the reduction.”

Click here to read the Complete Guide to Student Loan Bankruptcy

#2 Can the Department of Education take my tax refund for unpaid student loans?

Your tax refund can be offset for student loans only if you’re in default on a federal student loan. To prevent the offset from happening, you’d want to get out of default before filing your taxes.

Click here to read How Do I Know if Student Loans Will Take My Tax Refund

#3 If my wages are being garnished for student loans will I get a tax refund?

Your tax refund will likely be offset if you’re being garnished for student loans. So long as you’re in default, the government can use all of its student loan collection powers to recover the student debt you borrowed.

Click here to learn Can an Inheritance be Garnished for Studen Loan Debt?

#4 How long does it take for a tax offset to be removed?

For student loans, you’ll typically remain on the tax offset list until your loans are out of default.

Depending on whether you get out of default through loan consolidation or loan rehabilitation, it may take 2 to 10 months to get removed from the tax offset list.

#5 How do I find out who offset my tax refund?

To find out who offset your refund, you can call the Treasury Offset Program at 800-304-3107. You can also use the Department of Education’s National Student Loan Data System at studentaid.gov.

After you log in with your FSA ID, you can use the NSLDS to track down which agency offset your refund.

Your state refund may be offset if you owe a student loan to a state agency like New York State Higher Education Authority.

#6 What if I never received an offset letter?

A letter is supposed to be mailed to you before the first year your refund is offset for student loans. If you didn’t get that letter, it’s likely either because:

  • This is not your first tax offset or
  • The agency that offset your refund has an old address for you

Can you challenge the offset because you didn’t get the letter? Sure. But that challenge will likely fall on deaf ears.

#7 How to get your tax refund back from the Department of Education?

You may be able to get your tax refund back from the Department of Education if you’re facing eviction or foreclosure.

Here are the steps to take:

  1. Confirm the Department of Education took your tax refund. Call the Department of Education’s Default Resolution Group at 800-621-3115.
  2. Request an application to have your tax refund offset reversed for financial hardship.
  3. Review the hardship requirements. You may need to be in a voluntary repayment plan like the loan rehabilitation program to get your refund back.
  4. Gather the necessary documents. To get your refund back, you have to submit a hardship request with documentation showing the eviction or foreclosure is imminent. Typically, you’ll do that by providing notarized letters from the landlord or mortgage company or official court documents.
  5. Confirm the Department received your documents. The Department of Education has been known to say they haven't received all the paperwork you sent. So ask a representative to go through your paperwork to confirm it’s all their and no other paperwork is needed.
  6. Wait for a decision. After you submit your paperwork and confirm receipt, the only thing you can do is wait.

Getting a refund reversal for hardship is extremely hard.

Unfortunately, the odds are that you likely won't get refund back. And even if you do, you'll likely only get some of it back.

#8 Is there a student loan tax offset hardship refund form?

There’s no universal form to get your tax refund back as a hardship. You have to contact the company that took your refund to find out:

  • What form they want you to complete and
  • What information you need to provide

Click here to get Student Loan Tax Refund Offset Reversal Forms

Flat lay of tax refund hardship application for the Department of Education.

#9 How long does it take to get a tax refund after offset?

It takes up to 8 weeks to get your tax refund back after your hardship request has been approved. There’s no way to speed the refund process up. All you can do is wait.

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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