How Do I Know If Student Loans Will Take My Tax Return
How Do I Know If Student Loans Will Take My Tax Return?
We’re glad you asked!
If you have student loan debt, the last thing you want is to have your tax return taken by the government to pay off those loans. But if that happens, what can you do?
The first thing to understand is that the National Student Loan Data System (NSLDS) will only take a portion of your tax return. It takes up to 15% of your income after deductions and exemptions. If they take more than that, then you can contact them directly and try to negotiate it down.
If they take less than 15%, then there’s nothing to worry about—you won’t lose any money from your tax return due to student loans. But if the NSLDS does take more than 15%, then what can you do?
How Do I Know If Student Loans Will Take My Tax Return
If you default on a federal student loan, your tax refunds can be taken to help cover what you owe. However, the government has paused this program and other collection activities through Nov. 1, 2022, due to the pandemic.
Payments are also paused on all federal student loans through Aug. 31, 2022.
After that relief ends, the best way to stop student loans from taking your refund is to address the default before filing your tax return. Once your money is gone, it’s much harder to get it back.
In a regular tax season, if you have federal student loans in default, your tax refund can be used to help make up for what you owe on your loan. However, this doesn’t apply to private student loan borrowers, whose tax refunds cannot be garnished if their private loans are in default.
For federal student loan borrowers, your loans go into default after 270 days of past-due payments.
But under the March 2020 CARES Act, those payments have been on pause on federal student loan payments and interest, and extended until May 1, 2022. However, it’s expected this will be the last extension of student loan forbearance, and payments will resume.
Taxpayers with defaulted federal student loan debt can rest easy knowing that their 2021 tax refund is safe at least until May 1, 2022. But after that, federal student loan holders will be paying their bill once more.
student loan garnishment refund
You must have federal student loans in default to have your tax refund garnished. Federal student loans enter default after 270 days of past-due payments. Private student loans in default aren’t eligible for tax refund garnishment.
If your tax refund is subject to garnishment, you’ll receive a letter from your loan holder saying it has referred your account to the Treasury Offset Program, or TOP. This is the part of the U.S. Department of the Treasury tasked with taking federal payments to cover delinquent debts owed to government agencies, such as past-due child support and defaulted student loans.
Your loan holder will send you a tax offset notice before your refunds are seized. This typically happens months before you file your return, so you have time to take action. But you might receive that notice only once.
For example, say you had a loan default in January 2020. By November, you likely would have heard that your 2020 refunds would be offset. That might not have happened because of coronavirus relief measures. The same thing could happen for 2021. Still, if you don’t address the defaulted loan, your 2021 refunds could be seized without additional notice.
You can’t dispute tax garnishment on the grounds of not receiving the offset notice. Check that your loan holder has up-to-date contact information for you. If you’re not sure who holds your loans, log in to your account at studentaid.gov. The Treasury Department will contact you after the offset.