The Treasury Department can only intercept your refund after your loans officially enter default. If you start missing payments in early 2025, your loans won't be in default until later in the year, so your tax refund would be safe. However, any refund processed after your default date in 2025 could be intercepted.
For Written Contracts: Most private student loans are considered written contracts. Under California law, the statute of limitations for a written contract is four years. This means the lender has four years from the date you miss a payment (and breach the contract) to sue you.
Collection activities are currently paused for all federal student loans through September 2024, which should protect your 2022 and 2023 federal and state tax refunds.
If you default on your federal student loan, the entire balance of the loan (principal and interest) becomes immediately due. This is called acceleration. Once your loan is accelerated, your loan holder can begin collecting on your loan by taking money from your wages or your federal payments (such as tax refunds).
If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.
If you default on a federal student loan, then your wages or bank accounts can be garnished without a court order or judgment. The maximum that can be withheld for federal student loan garnishment is 15% of your disposable income.
With federal student loans, wage garnishment can continue until your loan balances plus interest and fees are paid back, but it can also end if your loan is removed from default. The federal government can garnish up to 15 percent of your disposable income to repay federal student loans.
If you have an objection to the debt, you have the right to request a review of your objection. If you're successful, your tax refund and other federal payments will not be offset, or the amount being offset may be reduced.
Typically, these refunds are intended to cover school-related expenses such as off-campus housing, supplies or transportation. However, there are also cases in which students have borrowed more than they actually needed, resulting in a refund check. It's important to know that refund checks are not “free” money.
Both federal and private student loans fall off your credit report about seven years after your last payment or date of default. You default after nine months of nonpayment for federal student loans, and you're not in deferment or forbearance.
When you fall behind on payments, there's no property for the lender to take. The bank has to sue you and get an order from a judge before taking any of your property. Student loans are unsecured loans. As a result, student loans can't take your house if you make your payments on time.
Collections (offset and garnishment) on most defaulted loans will stay paused through Sept. 30, 2024, due to the Fresh Start program.
Not all debts are subject to a tax refund offset. To determine whether an offset will occur on a debt owed (other than federal tax), contact BFS's TOP call center at 800-304-3107 (800-877-8339 for TTY/TDD help).
Right now, anyone who receives student loan forgiveness between 2021 and 2025 will not have to pay taxes on any amount of student debt forgiveness. PSLF or IDR forgiveness is a potential result for any borrower. However, not all borrowers will reach forgiveness.
Generally, if you miss payments, your loan is considered delinquent and is reported as such to the national credit reporting agencies. You don't get reported when you're in forbearance. During the on-ramp period (through Sept. 30, 2024), we automatically put your loan in a forbearance for the payments you missed.
Federal student loans are considered in default after nine months of non-payment. Federal tax refunds can be garnished by the U.S. Department of Education to offset delinquent loan payments. Income-driven repayment plans, refinancing and consolidation offer paths to avoid default and tax return garnishment.
If you owe back taxes, the IRS will take all your refunds to pay your tax bill, until it's paid off. The IRS will take your refund even if you're in a payment plan (called an installment agreement).
Generally, if you fully paid the tax and the IRS denies your tax refund claim, or if the IRS takes no action on the claim within six months, then you may file a refund suit. You can file a suit in a United States District Court or the United States Court of Federal Claims.
If you made federal student loan payments in 2023, you may be eligible to deduct a portion of the interest you paid on your 2023 federal tax return. Student loan interest payments are reported both to the Internal Revenue Service (IRS) and to you on IRS Form 1098-E, Student Loan Interest Statement.
It's important to note that certain types of debt, such as most student loans, typically cannot lead to bank account garnishment without additional federal court involvement.
Your loan holder can order your employer to withhold up to 15% of your disposable pay to collect your defaulted debt without taking you to court. This withholding (“garnishment”) continues until your defaulted loan is paid in full or removed from default.
What Accounts Can the IRS Not Touch? Any bank accounts that are under the taxpayer's name can be levied by the IRS. This includes institutional accounts, corporate and business accounts, and individual accounts. Accounts that are not under the taxpayer's name cannot be used by the IRS in a levy.
Unfortunately, being incarcerated does not automatically pause your student loan bills. However, you may be eligible for other relief to help you manage your student loans and avoid default while incarcerated, such as income-driven repayment, deferment, or forbearance.
Your loan can be discharged only under specific circumstances, such as school closure, a school's false certification of your eligibility to receive a loan, a school's failure to pay a required loan refund, or because of total and permanent disability, bankruptcy, identity theft, or death.