How Does the Treasury Offset Program Work With Student Loans?

• The Treasury Offset Program can take your tax refund automatically if your federal student loans are in default. No court order required.

• As of May 2025, federal student loan collections through the Treasury Offset Program have resumed, putting refunds at risk again.

• You can stop offsets by getting out of default through loan consolidation or rehabilitation. Both options remove you from the offset list.

The Treasury Offset Program (TOP) lets the government take your tax refund, Social Security, or other federal payments if you have defaulted federal student loans. It’s fast, often happens without warning, and can drain money you were counting on.

The U.S. Treasury’s Bureau of the Fiscal Service (BFS) runs this program and works with the Internal Revenue Service (IRS) to collect delinquent debts owed to federal agencies. This process is legal under federal law.

TOP is commonly triggered by:

• Unpaid federal or state taxes

• Defaulted federal student loans

• Child support obligations

• Unemployment insurance overpayments

• SBA or EIDL loan defaults

The agency you owe reports the debt to TOP. If you’re set to receive a federal payment, the Treasury checks for matches. If it finds one, the payment is intercepted and applied to your balance.

As of May 5, 2025, the TOP is back in full force. The pause on federal student loan collections is over, and if you’re in default, your tax refund is once again at risk.

Before restarting collections, the Department of Education sent out formal offset warning notices to borrowers in default. These notices explained that offsets would resume and gave borrowers time to act. But if your address or contact info wasn’t up to date, you may have missed it, just like many others.

Here’s what the TOP looks like with a defaulted student loan:

• Your loan defaults after 270 days of missed payments.

• The Department of Education sends your debt to a collection agency.

• If the debt remains unpaid, it’s reported to the TOP.

• The Treasury looks for any federal payments you’re set to receive, such as tax refunds, Social Security benefits, federal contractor or vendor payments, etc.

• If they find money, they take it automatically and apply it to your loan balance. This is called an offset.

• Offsets continue until you either pay off the loan or get out of default.

To stop this from happening again, you’ll need to rehabilitate or consolidate your defaulted student loans.

Yes. You can get out of the Treasury Offset Program, but only by resolving the student loan default directly. Here are a few ways to minimize or get out of the TOP:

• You’ve paid or resolved the student loan default. If you consolidated your defaulted loans, completed rehabilitation, or fully paid the balance, your name should be removed from the offset list. It may take a few weeks for the system to update.

• The debt was reported in error. If the debt isn’t valid (i.e., wrong amount, already paid, not your loan), you can dispute it. Start by contacting the agency that reported it. You may need to provide documents or file a formal dispute.

• You were approved for a hardship exemption. In rare cases, you can temporarily stop an offset by proving serious financial hardship. This requires a formal request, income and expense documentation, and approval from the Default Resolution Group. But this won’t clear your default; it only pauses collection.

If you can’t afford the offset but don’t qualify for hardship, your best move is to get out of student loan default. Consolidation is usually the fastest path. Once your loans are back in good standing, offsets stop, and you can even get your refund back in some cases.

If you’re worried about (or are already) losing your tax refund, there are a few ways to confirm whether you’re in the TOP:

• Call the TOP hotline. This automated TOP line will tell you if you have a debt flagged for offset. It won’t tell you the exact amount or details, but it will confirm if you’re on the list.

• Check your IRS account online. Look for “Refund Status” in your IRS account or any notes about your refund being reduced. It may say “applied to past due obligation”. That’s a sign of a Treasury offset.

• Check your FSA account. See if your loans are in default. If they are, and you haven’t started rehab or consolidation, you’re at high risk for offset, or it may have already happened.

Look for a Treasury Offset Notice or IRS Letter 4491C. These notices are sent after your refund is taken. They include a TOP trace number, the amount taken, and which agency received the money. If you see this, the offset already happened.

Some federal loans are exempt from offset, like certain disaster relief payments, tribal funds, or specific loans from agencies like the VA or USDA. But loans from the Department of Education (including Direct Loans, FFEL, and Parent PLUS Loans) are not exempt.

You can view the full list of exempted federal debts here: TOP Exemption List.

If your defaulted student loans are triggering an offset, the only way to stop it is to get out of default through rehabilitation or consolidation.

Once your student loans go into default, the government doesn’t wait. They take your money automatically through the TOP, often with minimal warning and no court involved.

You can dispute invalid debt, apply for a hardship exemption, or stop offsets for good by getting out of default through consolidation or rehabilitation.

If you’re stuck in default or facing an offset, we can help.

Talk to our student loan expert today.

We help borrowers clear their student loan debt with a clear, tailored plan.

Related reading:

• Understanding Delinquency vs. Default in Student Loans

• Student Loan Rehabilitation Program

• How to Stop Student Loan Wage Garnishment

• How Defaulted Student Loans Affect Credit in 2025

• What Happens if You Default on Private Student Loans?