Garnishment of Tax Refund for Student Loans: How it Works

#1 Student loan lawyer

Updated on July 10, 2023

Ever wondered what it means when we talk about tax refund garnishment for student loans? Let’s unravel it. Student loan tax refund garnishment is when Uncle Sam takes a piece (or all) of your federal income tax refund to pay off defaulted federal student loans.

But here’s the catch. Only federal loans in default get this treatment. Private loans dodge this bullet.

If you’ve slipped on payments for 270 days, bingo, you fall into student loan default with the Education Department. At that point, the department uses the Treasury Offset Program to tap into your tax refund and settle the score.

Want to know if you’re skating on thin ice?

First, before filing your tax return, see if your federal loans are flashing ‘default.’ Next, dial the IRS offset number at 1-800-304-3107. After you input your Social Security Number, this hotline will spill the beans on any lurking offsets and the fate of your next refund. Also, look for a “delinquent debt notice” or “Notice of Intent to Offset.”

To dodge the bullet of garnishment, stick to regular loan payments, mull over deferment or forbearance options, or breathe life into defaulted loans. If a tax refund offset notice hits your mailbox, spring into action and follow the details in the notice to safeguard your refund.

For private loans, tax refund garnishment is off the table. Instead, lenders must bag a court victory to garnish wages or dip into your bank account.

When garnishment knocks on the door, you’ll receive a notice of intent. This letter will serve up the details — your original refund amount, offset amount, the beneficiary agency, and its hotline.

Related: How to Stop Student Loans From Taking Taxes

The Bureau of the Fiscal Service will also send a Notice of Offset if they’ve swooped on your refund. If the garnishment is tied to unpaid child support, they’ll point you to the right agency.

Note: As part of the pause on federal student loan payments during the pandemic, the Biden administration has stopped taking tax refunds until 2024.

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Screenshot of FAQ page from about postponing tax refund offsets.

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Double Hit to Your Wallet

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.

Financial Details of Garnishment

The garnishment process continues until your defaulted student loan is repaid or otherwise resolved, such as through rehabilitation or loan consolidation. For federal loans, up to 15% of your disposable income could be taken.

In the case of private loans, after the lender wins a lawsuit against you, as much as 25% of your disposable income could be garnished.

Duration and After-effects of Garnishment

Garnishment doesn’t just end with your refund. Its lasting impact could be a damaged credit score and difficulty getting approved for future loans or credit cards. Wage garnishment might follow suit.

Getting Garnished Money Back

To recover garnished funds, you must request a hearing within 30 days of receiving the Notice of Intent to Garnish. Winning the hearing halts garnishment.

Another way out is rehabilitating your loan—making regular payments on time for nine months until the default status is removed. This stops the garnishment and opens more repayment options.

Related: How to Rehabilitate Student Loans

To dodge tax refund garnishment altogether, stay regular with your student loan payments, consider income-driven repayment plans, or, if those are too expensive, deferment or forbearance options. You can also check out the Fresh Start Student Loan Program to get out of default quickly.

But if the money has already been taken by the Education Department or another federal agency, you can request a financial hardship refund. These are rarely granted. In all my years of helping federal student loan borrowers, I can count on one hand how many times the department has been willing to refund an offset tax refund.

Related: Student Loan Tax Offset Hardship Refund

If you receive a notice of tax refund offset, heed the information provided, as it can save your tax refund from being seized for defaulted student loans.

Tax Filing Impact

Though you might face student loan garnishment, you can still qualify for certain tax deductions. You can deduct up to $2,500 of your student loan interest on your federal taxes, regardless of your loan status. But the IRS categorizes loan principal repayments as personal expenses, so those payments aren’t tax-deductible.

Claiming Dependents with Defaulted Loans

If your spouse defaults on their federal student loans and you file your taxes jointly, your tax refunds could also be garnished. Filing separately could protect your refund, although it might increase your tax liability or alter your monthly payments under an income-driven repayment plan.

Likewise, claiming a dependent with defaulted loans could affect your tax refund if you file jointly. To mitigate this risk, you might consider filing separately or helping the dependent address their defaulted student loan debt through strategies like rehabilitation, consolidation, or other repayment options.

Payment Tracking and Discrepancies

To keep track of payments made through student loan tax garnishment, contact your loan servicer, log in to your account at, or call the IRS offset number. This will provide information about your debt situation, possible offsets, and confirmation if your tax refund has been withheld due to defaulted student loans.

Bottom Line

What to do about garnishment and its impact on tax refunds is all about understanding your personal finances and available debt relief options. This tax season, don’t let your refund be at risk.

My team and I are ready to help you protect your tax refund and paychecks from defaulted student loans.

Start the journey towards financial control by booking a strategy session today. Your student loan struggles can become a springboard for growth and stability with us.

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