Protecting Your Tax Refund: Navigating Student Loan Defaults

Understanding the Threat to Your Tax Refund

The return of federal efforts to collect on defaulted student loans brings with it an unsettling reality for millions: the risk of having their tax refunds seized. With the IRS's income tax filing season set to open on Jan. 26, borrowers need to be vigilant.

"Dial before you file," advises Persis Yu of Protect Borrowers, emphasizing the importance of staying informed about your repayment status.

As the IRS resumes offsetting refunds for those in default, individuals must take proactive steps. For many, this means addressing their default status before tax season can lead to significant financial security.

Why Are Refunds Being Seized?

The government, under the authority of the Department of Education, can ask the Treasury Department to offset tax refunds for unpaid student loans. Generally, loans are considered in default after nine months of missed payments. Once in default, the government has indefinite authority to collect what is owed.

The Current Scenario: Why Now?

The collections process restarted in May 2025 after a lengthy pause due to the pandemic, with nearly 10 million borrowers currently in default. This recovery period is essential for making a difference in borrowers' lives, even while the government acts to recoup losses.

Understanding Your Rights: Notifications and Actions

Despite the resolution notice you might receive from the government, many borrowers often overlook these crucial communications. If you're in default, it's vital to check your status, especially before filing your taxes.

Steps to Protect Your Refund

1. Call the Treasury Offset Program: If you've defaulted, contact their hotline at 800-304-3107 to verify your status.
2. Consider Filing for an Extension: This grants more time to figure out a payment plan and secure your loans.
3. Explore Rehabilitation or Consolidation: Getting your loans out of default is essential for safeguarding your tax refund.

What If I'm On the List for Seizure?

If forewarning notifications are issued, take swift action to rehabilitate your loans or explore consolidation to avoid the loss of your tax refund.

Can My Refund Be Taken in Future Years?

Unfortunately, yes. The government holds the power to continue offsetting refunds year after year until the debt is settled.

Joint Filers: What Should You Know?

If your spouse is in default, you can file an “injured spouse” form, known as Form 8379, to reclaim your portion of the joint refund.

Conclusion: Navigating the Future

The road ahead is fraught with uncertainty for many borrowers, but understanding your rights and taking proactive steps can mitigate the risks involved. The government's renewed collections process underscores the importance of financial literacy in today's economy. As we face these challenges, remember: the markets affect people as much as profits.