Tax Refund Offsets

The consequences of defaulting on a student loan can be grave. In addition to common penalties, such as wage garnishment, tax refund offsets, and collection charges, you may be refused home loans, apartment leases, and credit cards if you have a history of defaulting on student loans. Even if you file for a bankruptcy, student loan debt is not discharged and you must pay them regardless of your employment status, financial circumstances, etc. Therefore, it is important that you work with a trusted advisor like the Student Loan Relief Department who can suggest you ways to avoid student loan default and its consequences.

What is Tax Offset Refund?

Tax Offset Refund is a method used by the Department of Education to collected defaulted student loans. Using this method, the government can seize or garnish your tax refunds and use to them to repay your loan. Both federal and state tax refunds are prone to this debt collection method.

In addition to this, if you have filed for a joined refund with your spouse, the Internal Revenue Service can seize tax refunds of both of you and divert them towards payment of student loans.

How Does the Process Work?

The collection process begins with the IRS sending a notice to the borrower to inform them regarding their intent to use their state and federal tax refunds to pay off their loan. This notice provides the borrower an opportunity to review their loan records and take appropriate measure to avoid the penalty.

What Types of Loans Can Be Collected Using Tax Refund Offsets?

The federal government can collect several types of student loans using tax refund offsets, including:

  • Loan given by the DoE
  • Loans guaranteed by the DoE
  • Loans given by private lenders who have requested assistance from the DoE

What Are Some Ways To Avoid Tax Refund Offsets?

It is important to adopt a proactive approach to avoid tax refund offsets. The collection method is only used for defaulted student loans, which allows the borrower to take necessary measures during the delinquency period. You can avoid tax refund offsets using any of the following three ways.

1.  Consolidate the Loan

Consolidating the delinquent loans is a great way to avoid tax refund offsets. Using this method, the borrower can consolidate their loans into a new loan and choose a repayment plan that is more affordable. Once consolidated, the loans are considered as out-of-default and are not eligible for tax refund offsets.

Consolidation process takes 30 to 90 days usually; therefore, you must initiate this process in early delinquency period.

2.  Rehabilitate the Loan

Loan Rehabilitation is a process in which the borrower agrees to make nine monthly payments in a 10-months period. During this period, the government cannot offset the tax refunds. After successful completion of the requirements of loan rehabilitation, the loan is considered to be out-of-default and is eligible for deferment and forbearance.

3.  Challenge the Offset

If you feel that the government’s decision to offset your tax refunds is unjust, you can request a hearing to appeal the decision. If the borrower wins the case, the government is legally bound to pay back the amount seized during the process of tax offset.

A borrower may use any of the following three reasons to challenge the offset:

  • Permanent and total disability
  • False certification discharge
  • Satisfactory repayment arrangements with the lender

What the Student Loan Relief Department Can Do For You?

Federal student loan debt is one of the most difficult loan debts to escape. The government has an access to all your accounts, and therefore, it can use several methods to collect the outstanding amount. Tax refund offsets is one of the most powerful collection tools used by the government. However, an informed borrower can avoid this penalty by making appropriate settlements.

The Student Loan Relief Department helps you in exploring your options in case of a loan default or delinquency. We provide you the legal advice and the information you need to get out of this miserable situation and enjoy a debt-free life.  

If you have just received an offset notice or a collection call and you want to avoid the penalties of student loan default, you can contact us (855) 880-0210.