No federal taxes on relief through 2025
The American Rescue Plan Act of 2021 made student loan forgiveness tax-free at the federal level through the end of 2025, said higher education expert Mark Kantrowitz. That means you won't owe anything to Uncle Sam on any federal education debt cleared throughout 2024.
Collections (offset and garnishment) on most defaulted loans will stay paused through Sept. 30, 2024, due to the Fresh Start program.
Those who are in default could risk having their tax refund seized come tax time. You might be planning on getting a tax refund in 2025 but if you're in default on your federal student loans, your refund could be at risk.
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 2024, there's an offset of $700 for taxpayers with a taxable income under $37,500, with a pro-rata payment up to $66,667.
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.
Once you have confirmed it is not a scam, you can take steps to try to stop the tax refund offset by requesting a review. To request a review, contact your loan servicer. If you do not know who your loan servicer is, you can also contact the Department of Education Default Resolution Group.
Prevent an offset
Pay the full amount listed on the Intent to Offset Federal Payments (FTB 1102). Use the payment coupon included in the letter when you send your check or money order. To make a payment online, visit Payment options .
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.
Those who are not able to make monthly payments until September 30, 2024, will not be considered delinquent, placed in default, or submitted for tax refund offset requests (The White House, 2023). Borrowers with no defaulted loans pre-pandemic will not be impacted by tax refund offsets until after 2025.
The student loan payments pause included a pause of collections on defaulted loans. Collection efforts, including collection calls and wage garnishment, will resume one year after the payment pause ends—no later than September 2024.
Why did my college send me a check? A refund check is money that is directly deposited to you by your college. It is the excess money left over from your financial aid award after your tuition and additional fees have been paid. Your college may send you a check or the money may be deposited into your checking account.
For tax year 2024, the standard deduction for married couples filing jointly rises to $29,200, an increase of $1,500 from 2023. For single taxpayers, the standard deduction rose to $14,600, a $750 increase from the previous year.
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
If you owe money to a federal or state agency, the federal government may use part or all of your federal tax refund to repay the debt. This is called a tax refund offset. If your tax refund is lower than you calculated, it may be due to a tax refund offset for an unpaid debt such as child support.
The Fresh Start program for borrowers with previously defaulted student loans will prevent withheld tax refunds through at least September 2024. And borrowers won't newly fall into default as payments resume. The White House announced a 12-month student loan on-ramp from Oct. 1, 2023 to Sept.
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).
You must pay your benefit overpayment in full within 60 days of the date on the Notice of Intent to Offset Your Federal Income Tax Return (DE 957) to avoid having your refund offset (reduced or withheld). Visit Benefit Overpayment Services to log in or make a payment.
You should receive notice if your refund is going to be offset. If you haven't received notice, contact your student loan provider to determine if they intend to offset your refund.
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.
If you owe the IRS more than $25,000, it's important to understand what can happen next and what actions you can take. The IRS escalates its collection efforts when the amount owed exceeds $25,000, which can result in severe penalties such as asset seizure, bank levy, wage garnishment, and even passport revocation.
In July 2024, AFT sued MOHELA for a wide range of unlawful practices, including illegally executing a “call deflection” scheme to deny service to borrowers who need help.
You may be eligible for income-driven repayment (IDR) loan forgiveness if you've have been in repayment for 20 or 25 years. An IDR plan bases your monthly payment on your income and family size.
If you default on your student loan, that status will be reported to national credit reporting agencies. This reporting may damage your credit rating and future borrowing ability. Also, the government can collect on your loans by taking funds from your wages, tax refunds, and other government payments.