Will my tax refund be garnished for students     

The government halted all student loan collections on federal student loans at the start of the pandemic, and the relief currently lasts through May 1, 2022. Unfortunately, this means that your tax return won’t be taken to offset your outstanding federal student loan balance for the 2021 tax season. Will my tax refund be garnished for students in brief

Will my tax refund be garnished for students

Normally, if your student loans are in default status, your tax return will be seized to cover some of the defaulted balance. 

The U.S Department of Education says that these collections will stay paused for six months after this payment pause ends.

Eligible loans include

  1. Defaulted Direct loans.
  2. Defaulted FFEL loans.
  3. Defaulted Perkins loans owned by the Education Department.
  4. Defaulted HEAL loans.

This is a temporary relief measure; when filing your 2022 taxes next year, this will likely not apply.

How you can reverse your tax refund offset:

The good news is that a tax refund garnishment should not come as a total surprise to you. You should get a tax offset notice in the mail before tax season gets into full swing, typically in the autumn, which will give you time to act if you think you have a case to challenge it. Of course, you should only get a notice like this if your loan is actually in default, which is another fact you would likely be aware of.

The notice should inform you of your right to a copy of records related to your debt, get a review of the loan obligation, and enter into a written agreement to repay your debt.

Once you get this notice, you should closely review and monitor your current student loan status. For example, are you dealing with an extreme financial hardship? 

Here are some situations in which you may be able to avoid the offset.

(1) You’ve filed for bankruptcy, and the case is still open, or the student loan was discharged in bankruptcy (which is extremely rare but possible in cases of extreme financial hardship). 

(2) Your loans are not actually in default, meaning some error was likely made when you received the notice. For example, someone else’s loan shows up under your name because the Social Security number attached was incorrect.

(3) You have been the victim of identity theft.

(4) you’ve already entered into a repayment agreement with the Department of Education and have started making payments as required.

(5) You’re totally and permanently disabled.

(6) Your school closed, and you are eligible for a closed school or false certification student loan refund.

If the above applies to you, you may want to challenge your tax refund offset. F you want to freeze the tax refund offset as you challenge it, file a request for review at the address provided in the notice. This should be done by the later of 65 days following your receipt of the notice or 15 days after your request and receive your loan file, which you should do to get the full-time picture of what you’re dealing with. You must request that the loan file 20 days after receiving the notice.

That said, you can request a tax refund offset reversal after these deadlines and whether the refund was already garnished or not. Still, it’s best, in any case, to move as quickly as possible when faced with this situation.

It is generally harder to plead your case based purely on hardship than when there has been an error. Aside from bankruptcy, you may be able to qualify for a tax refund offset hardship refund if you are unemployed and have exhausted unemployment benefits, you are currently homeless, or you are facing eviction or foreclosure. 

To qualify, you will likely have to have already agreed to participate in a student loan repayment program. This process also may take quite a bit of time, so you’ll need to be patient.

How to avoid a tax offset in the first place:

Financial hardship can impact anyone. But there are many ways you can avoid dealing with a tax refund offset in the first place. Student loans are a type of debt that offers benefits many other loans do not, particularly if you are struggling financially. It is much easier than you might think to avoid default completely, which means you’ll never have to worry about your tax refund garnishing (not to mention the negative effect default will have on your credit score).

  1. Make your student loan payments on time:

It takes 270 days of nonpayment on federal students’ loans before official default status kicks in, although you are delinquent as soon as you miss one payment. Therefore, making minimum payments on time is the main thing you can do to stay out of default. However, if this isn’t possible due to any number of financial struggles you may be experiencing, you have several options.

  1. Consolidate or refinance your student loans:

Another way of avoiding default is to consolidate or refinance your student loans. Both options can help you keep your loan payments low and will move you toward making one payment per month. Depending on your, you could qualify for low-interest rates through refinancing.

You should always check to see if you’ll lose any federal protections by refinancing with a private lender. It is one potential risk of refinancing student loans, so be sure you understand everything involved.

What happens if you don’t stop a tax offset?

Your student loan holder will be to seize your refund — and your future refunds — until the tax offset stops.

You can get federal student loans back in good standing through rehabilitation and consolidation, which will also stop other consequences of the default like wage garnishment. Rehabilitation takes longer to complete, but you don’t have to finish the process to prevent future garnishment. However, you have to make payments in line with your agreement. Check your state’s department of taxation to learn more.