The effects of tax refund offsets and wage garnishments are distinct but can overhaul your financial situation. Your employer may hold back a part of your salary for wage garnishment. On the other hand, the federal government can withhold your entire tax refund in certain cases.
If you’ve defaulted on federal loans, you could simultaneously face wage and tax refund garnishments.
To prevent this double hit, keep up with payments, consider deferment or forbearance options, or explore loan rehabilitation. Monitor any offset or wage garnishment notice to protect your earnings and refunds.
Your State Tax Refund Can Be Taken In Some States
State tax refund garnishment varies from state to state. For example, in Ohio, the Department of Taxation can take from your state tax refund to settle certain debts. It’s unclear whether this includes defaulted student loans, revealing these policies can be state-specific.
Federal loans defaulting (270 days or more of past-due payments) can trigger the U.S. Department of Education to authorize garnishments. If you receive a notice of offset, don’t ignore it—act promptly to prevent withholding.
Related: Student Loan Wage Garnishment Texas
Private Student Loans Need to Sue You First
The consequences of defaulting on your loan depend on its type.
If you default on federal student loans, the government can withhold your income tax refund. But private student loans are a different story. While tax refund garnishment is off the table, private lenders can take other measures to recoup their money if you default. These actions can include:
Suing you in court: Private lenders can file a lawsuit for the amount owed.
Wage garnishment: If the lender wins a lawsuit, the court can order your employer to deduct a portion of your earnings to repay the loan.
Liens on property: A successful lawsuit can also lead to a lien on your property, such as your home or car, making it difficult for you to sell or refinance them.
To get out of default on private student loans, look into refinancing with a lender like Yrefy, negotiating a settlement with the loan holder, or filing student loan bankruptcy to discharge the debt.
Remember, wage and tax refund garnishments are two distinct collection methods.
Related: What Happens If You Default on Student Loans?
If you’ve defaulted on federal loans, you could be hit with both at the same time. This is why it’s so important to get out of default quickly on federal student loans. Not only will doing so protect your money, but it will also restore eligibility for affordable payment plans and student loan forgiveness programs.