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.
Tax Refunds Temporarily Paused
While the payment pause is ending at the end of August 2023, the Department of Education has stated that tax refund offsets will continue to be paused until at least six months after the payment pause ends.
(updated December 22, 2023) All or part of your refund may be offset to pay off past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or other federal nontax debts, such as student loans.
Administrative Wage Garnishments Temporarily Paused
The payment pause is ending at the end of August 2023, but the Department of Education has stated that collections on loans that are eligible for the new Fresh Start program will continue to be paused during the Fresh Start period.
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).
The bottom line. The student loan tax offset has been suspended through June 30, 2023. If you have federal student loans in default, your 2022 tax return won't be taken to offset your defaulted loan balance if you file your 2022 tax return by the filing deadline.
The best way to avoid student loan tax garnishment is to keep your loans out of default. You can avoid default by making the agreed-upon payments, exploring income-driven repayment plans, or seeking deferment or forbearance when you're experiencing financial hardship.
Borrowers should generally avoid putting their loans on default, or being 270 days past payment, to avoid seeing their tax refund garnished. However, the Biden Administration's 12-month on-ramp to repayment program currently prevents borrowers from facing a penalty if they don't make loan payments through Sep. 30 2024.
Unlike other forms of debt, federal loan servicers can garnish your wages without a court order if you default on your loans. However, there's an important caveat: Through September 30, 2024, the consequences for defaulting on your federal student loans are relaxed.
In most cases, the borrower no longer had any outstanding student loan reported on their credit record in February 2023, suggesting the loan may have been paid off, discharged, or aged off the borrower's credit record.
You generally cannot stop a tax refund offset. The IRS service center processing the return will likely not honor the request. However, the documentation submitted with the tax return can help with other interactions with the IRS.
There are many reasons why the IRS may be holding your refund. You have unfiled or missing tax returns for prior tax years. The check was held or returned due to a problem with the name or address. You elected to apply the refund toward your estimated tax liability for next year.
If you're married to someone who owes child support—and you're not responsible for the debt—you can file an "Injured Spouse Allocation" form with the IRS. If you submit this properly, the IRS may allow you to keep your portion of the tax refund.
Share: Usually only the state and federal governments are able to take your tax refund, therefore you'll probably get your refund if your student loan debt isn't: With the state or federal government. Part of a federally insured student loan program.
To the extent allowed by law, when a match happens, TOP withholds (offsets) money to pay the delinquent debt. In fiscal year 2023, TOP recovered more than $3.8 billion in federal and state delinquent debts.
Nelnet is a federal student loan servicer working on behalf of the U.S. Department of Education, the government agency that lends you or your child student loans. A loan servicer acts as the customer service provider for the loans that the Department of Education lends to borrowers.
The remaining unpaid balance of loans is forgiven after 25 years. Income-Based Repayment (IBR)—Depending on when you first took out loans (before or on or after July 1, 2014), payments are generally 10% or 15% of the borrower's discretionary income, but never more than the 10-year Standard repayment plan amount.
Income-driven repayment plan
With each plan, you'll make monthly payments based on your discretionary income and family size. After 20 or 25 years, depending on the plan, the remaining balance on your loans is forgiven.
By law, Social Security can take retirement and disability benefits to repay student loans in default. Social Security can take up to 15% of a person"s benefits. However, the benefits cannot be reduced below $750 a month or $9,000 a year. Supplemental Security Income (SSI) cannot be offset to repay these debts.
But refunds are expected to be noticeably bigger in 2024, with some people receiving up to 10% more than they did last year, according to Mark Steber, chief tax information officer at Jackson Hewitt. That would amount to a roughly $300 to $400 increase.
The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.
Fresh Start is a one-time temporary program from the U.S. Department of Education (ED) that offers special benefits for borrowers with defaulted federal student loans.
Here is a list of our partners and here's how we make money. Visit your My NerdWallet Settings page to see all the writers you're following. When filing taxes, don't report your student loans as income. Student loans aren't taxable because you'll eventually repay them.
If you're expecting a tax refund but have concerns about creditors garnishing it, you may be worrying too much. Federal law allows only state and federal government agencies (not individual or private creditors) to take your refund as payment toward a debt.
Offset letter
BFS will send you a letter explaining why your federal refund was reduced and that it may take several weeks before the federal refund reaches FTB. They will also send any remaining federal refund amount to you.