Q: How do I know if student loans will take my tax return?

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Stanley tate

Student Loan Lawyer

$400M+ student loans managed

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You’re nervous. The government took your income tax refund in the past and now you’re wondering if they will take it this year. Or maybe you recently defaulted on your student loans and want to make sure your tax refund doesn’t get taken.

Whatever your story, having your tax refund offset for student loans can destroy your life. You depend on that money. Often times, it’s spent before you get it. You’ve borrowed from family, took out a payday loan, skipped your rent, etc. You did all those things anticipating you’ll file your tax return early so you can get that refund back fast.

The last thing you need to happen is to get this letter:

Tax refund offset letter for student loans
Letter notifying borrower their income tax refund was offset for student loans.

I understand.

This year, over 1500 borrowers contacted me for help trying to either keep their tax refund from being offset for federal student loans, or get it back after it was offset.

For some, like my client Akilah, I was able to get their tax refund back. 

But for many, many others, there was simply nothing that could be done: the government refused to give back the refund. And that’s true even if the borrower had severe cases of financial hardship (homeless, unemployed, hospitalized, etc.).

Because it’s incredibly difficult to get your tax refund back after it’s been taken for federal student loans, the best thing you can do is to not let it be taken in the first place.

In this article, I’ll go over how to make sure that doesn’t happen to you.

Student Loans Can Legally Take Your Tax Refund

Yes. It is absolutely legal for the government to take your tax refund after you’ve defaulted on federal student loans. They can also garnish your wages, take some of your Social Security Benefits, and deny you future federal financial aid.

So if your tax refund was taken in the past for student loans, it was taken to repay federal student loan debt — not private loans.

And that will keep happening year after year until you get your student loans out of default.

There are two ways to get out of default: rehabilitation and consolidation.

The automatic stay from both a chapter 7 or chapter 13 bankruptcy can stop your tax refund from being taken, but only if the bankruptcy is active when you file your case.

Whether student loans will take your tax refund this year depends on which option you chose.

Twice-Defaulted Borrowers

If this is your second default on your student loans and you’re ineligible for the student loan rehabilitation program and you cannot consolidate your student loans, then you have two options to stop your refund from being taken: (1) paying off the loans or (2) filing bankruptcy.

Borrower Defense to Repayment

For student loan borrowers with defaulted student loans who submitted a borrower defense to repayment application, the government is supposed to cease collection efforts and place your loans into a deferment or forbearance. Technically, this means your federal income tax refund should be safe from offset. This is a tricky area though. I definitely wouldn’t file a return unless I was 100% certain the refund was safe.

Private student loans don’t have this power.

Will My Tax Refund Be Taken if I’m in a Rehabilitation Program

Over the years, many borrowers have contacted me frustrated because they thought their income tax refund wouldn’t be taken since they were in a repayment plan.

They want to know how could the government take their refund if they were upholding their end of the bargain by making each monthly payment under the repayment plan.

The most common problem I find when I look into their situation is that they, meaning student loan borrowers, actually haven’t upheld their end of the bargain.

Typically, what they failed to do is be fully enrolled in the loan rehabilitation program. 

Sure, they’re making the agreed monthly payments. But that’s not the only thing they have to do. The reality is that the process of protecting your refund is a little more complicated. And it requires following certain steps.

What I’m about to share with you are the 4 exact steps I go over with my clients before given them the blessing to file their tax return.

#1 Check studentaid.gov

Check studentaid.gov to view your student loans to make sure there are no surprises.

Often, you may have more than one loan that’s in default. You want to make sure that your rehabilitation agreement includes all the loans that are in default. If it doesn’t, before you file your return, find out where the non-included loans are at, and then contact the collection agency handling those loans.

If all of your loans are included, move on to step 2.

#2 Contact the Collection Agency

Call the collection agency handling your rehabilitation agreement.

Too often, borrowers think they’re in the rehabilitation program because they’re making payments. It isn’t until their tax refund is taken that they learn they were never officially placed in the rehabilitation program because the paperwork wasn’t approved.

Don’t let that be your story.

Here’s what to do. Check these three things:

  1. You’ve submitted the necessary rehabilitation agreement paperwork (the Rehabilitation Agreement Letter, the Loan Rehabilitation Income and Expense Form (if necessary), and proof of income (if any).
  2. The paperwork has been approved and you’re fully enrolled in the program.
  3. At least one monthly payment has been made on your account.
  4. If those 3 things check out, then the final question to ask is if you have been decertified from tax offset. And if you have, ask when that happened.

The collection agency representative may or may not have that answer. That’s okay. We’ll get an answer in later steps, but, for now, we want to find out as much as we can at each step.

Administrative Wage Garnishment

These are almost the same questions you should ask if you’re under an active administrative wage garnishment for student loans.

The only question that’s different is the last. 

Instead of asking if at least one monthly payment has been made, you want to know if there have been 5 monthly payments.

A wage garnishment for student loans is supposed to be suspended after your 5th monthly payment.

#3 Contact the Default Resolution Group

No matter what the collection agency representative tells you about your tax offset certification status, your next step is to call the Department of Education’s Default Resolution Group at 1- 800-621-3115.

The DRG is the federal government’s head collection agency for student loan debt. They communicate with the other government systems to know what’s going on with your loans.

When you call DRG, skip putting in your social security number and birth date. If you do that, you’ll be directed back to the collection agency. That’s not what you want. Instead, when you call, press “0” and then wait to be connected to a live operator.

Once the live operator gets on the line, you want to tell them that you are in a rehabilitation program and you’re just checking to see if you’ve been decertified from tax offset, and, if so, when.

The representative should have access to that information.

#4 Contact the Treasury Offset Program

The final step is to call the federal Treasury Offset Program at 1-800-304-3107.

The automated system will tell you whether you’ve been decertified (removed) from the Treasury Offset Program.

If you have been removed, then you should be able to safely file your tax refund. But if you haven’t, then you’d want to wait 2 to 3 weeks and then call the Program again.

The Department of Education has said it can take 3 weeks to update the Program system.

Will My Tax Refund Be Taken if I Consolidated My Defaulted Student Loans

Thankfully, consolidating defaulted student loans makes it pretty easy to make sure your tax refund is protected from student loans.

After someone consolidates a defaulted student loan, but before they file taxes, I check to make sure all of their defaulted student loan debt was included in the consolidation.

Next, I recheck the National Student Loan Data System to make sure my client doesn’t have any other federal student loans that are in default.

After that, I have my client contact the Treasury Offset Program to confirm they’re no longer certified for tax offset. If for some reason they’re still certified, we wait a couple of weeks and then call back. They should be good at that point.

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Hey, I’m Tate.

I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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