How Can I Stop Student Loans From Taking My Taxes
“How can I stop student loans from taking my taxes?” is a question we hear a lot at [company name]. It’s a good question, because when your student loan payments are taken out of your paycheck, it can seem like there isn’t enough money left over. But there’s hope! Here are some tips on how to keep the majority of your paycheck in your pocket:
1) Make an extra payment every month. Your student loan servicer will let you know what they expect as a minimum payment, but don’t worry about that—just pay more than that! You’ll be able to pay off your debt sooner and save yourself money on interest.
2) Get a side hustle going. If you want to make sure that all of your money is yours and yours alone, consider doing something on the side like selling stuff online or dog walking. This can help subsidize your income so that it’s not all going toward paying back student loans.
3) Take advantage of tax credits and deductions. There are several different kinds of tax credits and deductions that are available to those with student loan debt—check out this guide for more information!
How Can I Stop Student Loans From Taking My Taxes
You’ll know if you’re at risk of an offset through a notice in the mail from the federal government. Keep in mind that private student loans cannot take your tax refund.
The key to avoiding default status on your student loans — and, by extension, having your tax refund taken — is by making your monthly payments on time and in full.
If you’re having trouble making your monthly student loan payments, you’re not automatically destined for default status. You have options and benefits that come with your federal student loans, including:
- Repayment plans: Income-driven repayment plans base your monthly payments on your family size and monthly income. Once you make 20 to 25 years of qualifying payments, your remaining balance will be forgiven.
- Refinancing: Refinancing involves taking out a new private loan with a lower interest rate or lower monthly payment to replace your existing student loans. The main downsides to refinancing are that your rate is based on your creditworthiness and you’ll lose all federal benefits and protections.
- Student loan offset hardship refund: If you’ve experienced financial hardship, you could be eligible for a student loan offset hardship refund. If you qualify, any money withheld from your tax return will be refunded to you.
- Hardship options: If you’re in danger of defaulting, you can request deferment or forbearance, both of which temporarily pause your student loan payments.
If I owe student loans, will I get a tax refund?
It’s possible to receive a tax refund if you have student loans. Simply owing money on loans does not prevent you from getting a refund — defaulting on those loans does.
Whether you receive a tax refund depends on your unique tax situation. For instance, if you overpaid your taxes in 2021 or qualify for certain tax credits, you may receive a refund. However, if you underpaid your taxes, you may owe the IRS money.
The bottom line
The student loan tax offset has been suspended through Nov. 1, 2022. If you have federal student loans in default, your 2021 tax return won’t be taken to offset your defaulted loan balance if you file your 2021 tax return by the filing deadline.
If you think you’ll have trouble repaying your loans once the payment pause ends on May 1, 2022, consider enrolling in an income-driven repayment plan or refinancing your loans to lower your monthly payments. Alternatively, consider placing them in forbearance or deferment if you’re in danger of defaulting.
can student loans take child tax credit
If you’ve defaulted on a private student loan and the lender has gotten a court order to garnish your wages, the lender can move forward with that garnishment. However, private student loan lenders cannot seize your tax refund or child tax credits.
Student Loans and Taxes
Millions of people have benefitted from the child tax credit. Whether they opted for monthly advance payments or are claiming the credit to increase their tax refund amount, the child tax credit provided some significant relief.
Many borrowers were worried about how defaulting on their student loans would affect their tax refunds and the child tax credit. While the government hadn’t previously offered clarity, it announced in February that it would not seize tax refunds or child tax credits for federal student loan borrowers in default.
If your taxes feel more complicated this year — or you simply want to make sure everything is squared away and that you’ve claimed all the applicable tax credits and deductions available — working with a tax professional can be a smart idea. To find a certified public accountant (CPA) near you, search the CPAVerify database.
How to Avoid Student Loan Default
If you are having trouble making payments on your student loans, you have several options to consider before you go into default:
Switch repayment plans to get a lower monthly payment
Consider an income-driven repayment plan
Refinance your student loans
Get a deferment or forbearance
If you’re thinking about refinancing your student loans, check out ELFI.* We offer low-interest rates and multiple loan terms, and you can choose between fixed and variable interest rates. You can use student loan refinancing to tackle your high-interest private loans, streamline your repayment, or even lower your monthly payments.
You can get a rate quote from ELFI without impacting your credit score.*