How to Stop Student Loans From Taking Taxes

#1 Student loan lawyer

Updated on July 10, 2023

Wondering how to stop student loan tax garnishment from claiming your tax refunds? Your first step is addressing the default status of your federal student loans before you file your tax return.

Thanks to recent relief measures extended by the U.S. Department of Education due to the COVID-19 pandemic, collections through Treasury offset — like withholding tax refunds and Social Security benefits — will stay paused for at least six months after the student loan payment pause ends.

This means you won’t have to worry about losing your tax refund for the 2022 tax season.

Here are some strategic steps to protect your tax refund:

  1. Dodge Default: Rehabilitation is an option – make nine sensible and affordable payments within 20 days of the due date for 10 months straight. Alternatively, bundle up your defaulted loans into a new Direct Consolidation Loan to clear their default status. You can also look into the Fresh Start Student Loan Program. More on those three options below.

  2. Look at Income-Driven Repayment Plans: Payments under these plans are based on your income and family size, which might ease your financial load.

  3. Think About Deferment or Forbearance: Are you going through a temporary financial crunch? You might qualify for a deferment or forbearance to press pause on your federal student loan payments.

  4. Ask for a Review: Received a notice of tax refund offset? Challenge it by asking for a review from your loan servicer or the Department of Education Default Resolution Group.

  5. Consider a Student Loan Tax Offset Hardship Refund: If your hardship is more serious, you might be able to claw back the money taken from your tax return by applying for this refund.

  6. Rejig your Tax Withholdings: If your refunds are hefty, you’re essentially lending to the government interest-free. Adjust your withholdings to reduce your tax cut from your paycheck, helping you sidestep a big tax refund that might get garnished.

So, keep in mind, despite the burden of student loan tax garnishment, there’s hope on the horizon.

The government has suspended garnishment of tax refund for student loans until mid-2023, and the Treasury offset, including tax refunds, will stay on hold for at least six months after the payment pause ends.

Those eligible for the Fresh Start for defaulted loans will continue to get this collections relief through one year after the payment pause ends.

If your student loan-related tax refund has been offset since March 13, 2020, don’t hesitate to reach out to the Treasury Offset Program at 1-800-304-3107 to see if you can get some of that money back.

Types of Student Loans and Tax Refund Garnishment

Understanding the kind of student loans you have is crucial, as it can determine whether your tax refund can be garnished. Here are the main types of loans you should be aware of:

  1. Federal Direct Loans: As the most common type of federal student loan, Direct Loans are managed by student loan servicers under the oversight of the federal government. If these loans enter into default, the government has the authority to apply an offset to your tax refund as a means of repayment.

  2. FFEL Program Loans: Once a popular student loan type, the Federal Family Education Loan (FFEL) Program has since been discontinued. But many FFEL loans are still being repaid. They’re also subject to garnishment if you default. Be sure to check whether your lender or loan holder has the right to garnish your tax refund for repayment of past due amounts.

  3. Perkins Loans: Although the Perkins Loan program ended in 2017, borrowers still repaying these loans should know that their tax refunds can be garnished if the loans go into default.

  4. Private Student Loans: Private loans, funded by financial institutions rather than the federal government, typically have different rules compared to federal loans. In general, private lenders cannot garnish your tax refund to collect on defaulted student loans. But they may be able to do so through a court order, potentially impacting your personal finance.

Always remember to review the status of your student loans, whether they are federal or private.

If you’re in default, consider exploring payment plans, refinancing options, or seeking student aid to get back on track and protect your tax refund. Stay informed by checking official resources like for updates about student debt relief measures.

Related: Can Social Security Be Garnished for Student Loans?

Resolving Years of Student Loan Tax Refund Offsets

If your tax refunds have been funneled to your student loans for years, it’s time to stop it. Here are four direct methods:

  1. Fresh Start Student Loan Program: This initiative by the U.S. Department of Education offers a way to restore your loans to good standing and alleviate collection pressures. It’s specifically crafted for borrowers dealing with long-term financial hardship. To get started with the Fresh Start Program for Student Loans, get in touch with the Default Resolution Group at 1-800-621-3115. Keep in mind if your loans are defaulted and privately held under the Federal Family Education Loan program, you’ll need to work with the respective guaranty agency.

  2. Loan Consolidation: This strategy involves merging your defaulted loans into a new Direct Consolidation Loan. It effectively removes your loans from default and sets you up with a fresh repayment schedule and interest rate. A bonus benefit: it helps qualify you for student loan forgiveness programs, such as income-based repayment forgiveness and the IDR Waiver.

  3. Loan Rehabilitation: This method requires you to make nine voluntary, affordable, and on-time monthly payments within a 20-day grace period for 10 consecutive months. Successful completion will dig you out of student loan default. Before the pandemic hit America, this was a top strategy to shield your federal income tax refund from being offset. It not only set up an affordable monthly payment plan but also eliminated the default status from your credit report, potentially boosting your credit score. But with the introduction of the Fresh Start Program by the Education Department, the necessity for loan rehabilitation has diminished.

  4. Student Loan Bankruptcy & Adversary Proceeding: While it’s challenging, discharging student loans through bankruptcy isn’t entirely impossible. You’d have to file an adversary proceeding, providing proof of ‘undue hardship’. Although complex and typically considered a last resort, this approach could safeguard your refund from being offset and potentially lead to partial or full cancellation of your student loan debt.

Related: Student Loan Rehabilitation vs Consolidation

Tax Refunds Are Safe From Student Loans Until Next Year

Are tax refunds being taken due to the pandemic? The simple answer is: not for now. The U.S. government has currently paused collection activities on federal student loans and certain other debts due to the pandemic, which could protect your 2022 refund. Additionally, a new initiative, Fresh Start, is set to help defaulted borrowers regain good standing. This means your tax refund may be safe from garnishment even after collections resume.

But do keep in mind that your relief checks may still be vulnerable under certain circumstances, such as garnishment orders due to defaulted private student loans.

For a more detailed understanding, you can read our dedicated article on Will the IRS Take Refunds for Student Loans in 2023?

How to Get Your Tax Refund Back

If your tax refund has already been offset due to student loan debt, there’s a possible recourse: a student loan tax offset hardship refund. This is a special provision for borrowers in serious financial hardship, but it’s rarely granted and involves a specific application process.

Related: Student Loan Tax Offset Hardship Refund

Briefly, it involves contacting the Treasury Offset Program, gathering proof of your financial hardship, submitting a Tax Offset Hardship Refund Request, and then waiting for the federal agency’s response. But restrictions apply, and the process can be complex.

To learn about this in detail, read our comprehensive guide on How to Request a Student Loan Tax Offset Hardship Refund.

Remember, it’s crucial to address your loan’s default status proactively. Explore options like loan rehabilitation, consolidation, income-driven repayment plans, deferment, or forbearance to prevent future tax refund garnishments.

Bottom Line

As a student loan borrower, understanding your repayment obligations and options helps manage your student debt. Whether you’re worried about student loan interest, tax refund garnishment, finding the right student loan servicer, or navigating policies under the Biden administration, the complexities can often seem overwhelming.

In particular, handling defaulted federal student loans is not a straightforward process, and it may affect taxpayers if not addressed promptly. But remember that you’re not alone. There are resources available to help guide you through these issues.

We know that every person’s situation is unique. That’s why we’re here to offer personalized advice tailored to your individual circumstances. Consider booking a strategy session with my team and me to explore all your options and make informed decisions. We want to help you navigate your student loan repayment journey effectively. We look forward to being part of your path to financial freedom.

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