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Tax Refund Offset and Your Student Loans: Everything You Need to Know

There are 6 reasons the government can refuse to issue your tax refund and use it as a tax refund offset. These include when you have a delinquent federal or state income tax bill, you have collected more unemployment compensation than you are due, you have defaulted on your student loans, or you owe back child or spousal support.

Tax Refund Offset

Tax Refund Offset

If you have student loans and have been told you will have your tax refund withheld, or it has already been withheld, there are actions you can take.

Read on to learn how a tax income offsets work and how to avoid one.

Tax Refund Offset & Student Loans

At the beginning of 2019, student debt was approximately $1.49 trillion, which is $21 trillion more than for car loans. Credit card debt was only $850 million.

The cost of repaying student loans is high, and often students are not able to make regular payments. If you have fallen behind on your student loan payments, here are some steps to take to prevent having your tax refund withheld. Failing to act will result in the government using your tax refund to pay your past-due bills.

Actions to Take Before You Are Told You Will Have a Tax Offset

Any time you are behind on a loan or credit card, the first thing to do is contact your lender to see if you can work out a solution.

The same is true for student loans. Call your current lender, explain the situation, and see what sort of assistance they can offer.

Another option, if you have not done it already, is to consolidate your student loans into the Direct Loan Program. Explore this option, as it will bring all your loans under one payer and bring your accounts current.

Depending on the amount of your loan, can you repay it? While this is not often the case, it is worth exploring, especially if it can be paid off with another loan that’s at a lower interest rate. This will bring your loan current and also help you to pay it off quicker.

Request a Review to Challenge the Offset After You Have Received Notice of a Tax Offset

First, pull out the letter stating you will have a tax refund offset, and then pull a copy of your student loans.

Now, compare the two. If there are any of the discrepancies listed below, you have the right to request a review.

Common errors in this process include the following:

  • You are not behind on your loans
  • It is not your loan
  • You are already in a debt consolidation or modified repayment plan
  • You are in bankruptcy
  • Your debt was discharged because of bankruptcy
  • You are eligible for a total & permanent disability discharge

Your best bet is to hire a lawyer before your review to ensure you are properly represented. If the review fails, your attorney can help you decide if you can fight the tax offset.

To prevent the issue of a tax offset, consider how much you are borrowing for student loans before you begin school. If you fall behind, talk to your lenders early to find a solution. As the last step, talk to a qualified attorney who can help determine if you really own the money and suggest other options to fight the tax offset.

Do You Need Help with Tax Offset or Wage Garnishment Due to Your Student Loans?

We specialize in supporting individuals with cases before the Department of Treasury (DOT), the Bureau of Fiscal Service (BFS), and the Department of Education (DOE).

Feel free to contact us. We offer free initial consultations to determine how we can help you with the financial challenges you face. We specialize in supporting those who have tax refund offset due to their personal loans.