Student Loan Tax Offset Hardship Refund: How to Get It

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Updated on July 10, 2023

If you’re a federal student loan borrower dealing with serious financial hardship, you can request a student loan tax offset hardship refund. This kind of hardship could result from homelessness, permanent disability, bankruptcy that has resulted in a loan discharge, or even the exhaustion of your unemployment benefits.

Here’s how you can try and get some of your money back:

  1. Know your offset status: Visit the National Student Loan Data System (NSLDS), a part of the U.S. Department of Education, to check the offset status of your defaulted federal student loan.

  2. Reach out to your loan servicer: Once you’ve identified your loan servicer through the NSLDS, it’s time to discuss your hardship. If you’re not sure who your loan servicer is, call the Treasury Offset Program at 800-304-3107.

  3. Prepare your evidence: Your next step involves gathering documentation that proves your financial hardship. This could include eviction notices, medical bills, or proof of disability.

  4. Submit your hardship refund request: You’ll need to fill out some forms, likely including a Tax Offset Hardship Refund Request, and submit them along with your documentation to your loan servicer. Make sure to provide complete information to avoid denial of your request.

  5. Wait: Your loan servicer will need up to 30 days to review your application and make a decision.

You may only be eligible for one hardship refund to offset taxes. If you’ve already received a hardship refund, you might not be eligible to apply again. It’s also worth noting that you have the right to representation throughout the process. If you’re struggling, consider hiring a student loan lawyer to help.

Note: The Biden administration has implemented several measures in response to the ongoing pandemic. Federal student loan payments and their associated interest rates have been paused until the fall of this year. The administration has also suspended the student loan tax refund offset through 2024. If you’ve found that your refund was garnished during the pandemic, you can contact the Bureau of the Fiscal Service at 1-800-304-3107 to identify which agency is responsible for the offset.

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What You’ll Need to Provide

To obtain a student loan tax offset hardship refund, you’ll need to convincingly demonstrate your financial hardship to your student loan servicer. Here’s what you can present as evidence:

  1. Proof of exhausted unemployment benefits: If you’ve used up your unemployment benefits, a copy of the relevant notice would serve as proof.

  2. Proof of eviction or foreclosure: Have you received an eviction or foreclosure notice? Include a copy of that as well.

  3. Proof of permanent disability: If you’re dealing with a permanent disability, you will need to provide documents showing that you meet the criteria for being considered permanently and utterly disabled.

  4. Bankruptcy and loan discharge: If bankruptcy has led to a discharge of your student loan, copies of documents such as applications and discharge orders can back up your claims.

  5. Additional evidence of financial hardship: Depending on your unique situation, you may need to provide more documentation, like medical bills or proof of homelessness.

It’s critical to remember that every piece of relevant documentation should be sent along with your hardship refund request to your student loan servicer. The required forms can vary depending on your servicer, but you can find a Tax Offset Hardship Refund Request form for FFEL Loans from ECMC. To prevent a denial, make sure to include all necessary information and documentation in your application.

Given the complexities of the federal government’s rules for student loan debt, you might find this process overwhelming. Remember, understanding your student loan repayment options, knowing your lender or loan servicer, and ensuring you meet eligibility criteria can go a long way in handling this process efficiently.

What Qualifies as a Financial Hardship

To be eligible for a student loan tax offset hardship refund, you need to present credible evidence of severe financial distress.

Here are some conditions that might warrant such a refund:

  1. Depletion of unemployment benefits: Having used up all your unemployment benefits could make you eligible for a hardship refund.

  2. Eviction notice or foreclosure: Receiving an eviction or foreclosure notice could qualify as serious financial hardship.

  3. Utility disconnection or shutoff: Facing a utility cutoff due to nonpayment is a recognized form of financial hardship.

  4. Homelessness: Lacking a stable residence can qualify as serious financial hardship.

  5. Permanent disability: Being permanently disabled can qualify as a significant financial hardship.

  6. Bankruptcy and loan discharge: Filing for bankruptcy and getting your student loan discharged might qualify you for a hardship refund.

  7. Exhaustion of unemployment benefits: Once more, having exhausted your unemployment benefits could be considered a substantial financial hardship.

When applying for a student loan tax offset hardship refund, providing documentation substantiating your financial hardship claim is crucial.

Dealing with student loan payments can be daunting, especially when faced with hardship. It’s essential to understand the various repayment options, such as income-driven repayment plans, deferment, and forbearance.

Additionally, depending on your circumstances, you might be eligible for student loan forgiveness or rehabilitation.

Always keep your lender or loan holder informed about your financial status and ensure you fulfill all the necessary criteria to be considered for relief.

When You Need to Request Refund

There isn’t a fixed deadline for applying for a student loan tax offset hardship refund. That said, you should lodge your request soon after learning about the offset or the financial distress you’re experiencing. Do remember that due to the ongoing pandemic, the student loan tax offset has been suspended until June 30, 2023.

Act promptly if you’re grappling with financial hardship and your tax return has been used to offset past-due student loan payments. Gather the necessary documents and apply for a hardship refund without delay. Typically, you have 65 days after receiving the offset notice to contest the offset and request a refund.

Know that your loan servicer may take up to 30 days to review your application and make a decision. If your application is denied or needs additional assistance, consider contacting the Taxpayer Advocate Service at 877-777-4778 or visit their website.

How Long It Takes to Get a Refund

The processing time frame for a student loan tax offset hardship refund request is not fixed, but generally, it’s best to allow up to 30 days for your loan servicer to evaluate your application and make a decision.

As soon as you learn about the offset or your financial hardship, it’s crucial to submit your request.

If your request is denied or needs additional support, consider contacting the Taxpayer Advocate Service at 877-777-4778 or visit their website.

Can a Student Loan Lawyer Help Get a Refund

A student loan lawyer can help request a student loan tax offset hardship refund. They can explain the necessary steps, help you gather the required documentation, and help complete and submit the appropriate forms to your loan servicer. Additionally, a student loan lawyer can represent you throughout the process, ensuring your rights are protected, and you have the best chance of successfully obtaining a hardship refund.

Understanding the Garnishment Process

The garnishment process can feel complex, especially when it involves your tax refund, which many individuals count on as part of their financial planning for the year. In essence, garnishment is a legal procedure that allows a lender to deduct money from your disposable income, in this case, your tax refund, to repay debts.

Regarding student loan debt, garnishment is a tool federal agencies may use to reclaim outstanding debts. This means if you have defaulted on your federal student loans, the IRS may garnish or keep some or all of your federal tax refund amount to pay toward your debt. This process can significantly affect your monthly payments and credit score, depending on the amount being garnished.

It’s crucial to be aware of this possibility if you’re struggling with managing your federal student loan debt, as the impact on your personal finance can be substantial. The garnishment process is distinct from wage garnishment, which is another collection proces where your employer withholds a portion of your earnings to repay your debts.

For a deeper dive into how this process works specifically with tax refunds, visit our article, Garnishment of Tax Refund for Student Loans: How it Works. Knowledge is power, and understanding the garnishment process can give you the information you need to make the best decisions for your financial health.

Preventing Tax Refund Garnishment for Student Loans

It’s possible to prevent the garnishment of your tax refund due to student loans. Here are some strategies:

  1. Fresh Start: The Fresh Start Student Loan Program can return your defaulted student loans to good standing within weeks. It removes late payments from your credit report and initiates an affordable payment plan. You can register by contacting the Default Resolution Group at 1-800-621-3115.

  2. Loan Rehabilitation: Make agreed payments on time with your loan servicer for a certain period to get out of default status.

  3. Consolidation: Pay off defaulted loans with a new loan with new repayment terms. You can consolidate your student loans for free on the Federal Student Aid website,

  4. Student Loan Tax Offset Hardship: If you face significant financial hardship, apply for this relief to prevent IRS garnishment. Proof of hardship is necessary.

  5. Income-Driven Repayment Plan: Adjust your monthly payments based on income, reducing the payment amount and potentially stopping garnishment.

These strategies involve interaction with federal agencies and require planning and time. For a detailed guide, visit our article on how to stop student loans from taking your taxes.

Private Student Loans and Your Federal Refund

While the options discussed above largely apply to federal student loans, the rules differ for private student loans.

The federal government can offset your tax refund for unpaid federal student loans, but private lenders, such as Sallie Mae and Discover, lack this authority. They cannot garnish your refund to repay defaulted private student loans. Before these companies can take money from your paycheck or bank account, they must first take legal action, sue you in court, and obtain a court order authorizing such action.

If you struggle with your private student loan payments, refinance with a new lender. With refinancing, you might be able to secure a better interest rate or a longer repayment term, which could significantly lower your monthly payments and make them more manageable. Use an online marketplace like Credible to simultaneously shop around and compare multiple refinancing lenders.

Related: Can Private Student Loan Garnish Wages?

How to Get Back Your Spouse’s Refund

If your spouse’s student loan debt is in default, the IRS could garnish your joint federal income tax refund. In those cases, ‘Injured Spouse Relief’ could be a lifesaver.

  1. What it is: Injured Spouse Relief is a form of tax relief that protects your portion of a joint tax refund when your spouse has past-due federal or state debts, child support, or student loans.

  2. How to Apply: File IRS Form 8379, ‘Injured Spouse Allocation.’ You can submit this form with your joint income tax return or separately after receiving an offset notice.

  3. Impact on Tax Refund: If approved, the IRS will allocate part of your joint refund to you, separate from your spouse’s debts. This process might delay your refund but ultimately ensures that you receive your fair share of the refund.

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