Posted by Taxes Made EZ Inc

Tax Refund Held For Student Loan Default: What To Do?

Tax Refund Held For Student Loan Default: What To Do?

When your anticipated tax refund is being held by the federal government, the possibility is that you have defaulted your federal student loans.

Funds are collected by the Treasury Offset Program of the federal government from individuals who have failed to pay the debts they owed to federal or state agencies including federal student loans and other federal loans such as small business loans.

Treasury Offset 

Most of the federal benefits can be garnished, whichever federal program you default on, through the Treasury Offset Program. This includes some of the Social Security benefits, tax refunds, and even your farming benefits. Until such time that you have paid your defaulted loan, federal benefits will be seized continuously.

If your federal student loan is 270 days past due, the Department of Treasury will be notified by the Department of education about the defaulted loans and therefore will be subjected to offset of federal benefits.

The tax identification number (which is mostly the Social Security number) that is forwarded by the Department of Education to the Treasury Department will be matched in the computer system. If it matches, your Treasury account will be flagged by the officials as one that requires offset until it has all been paid. You can also ask for advice from the Department of Education for an alternative solution like paying your loan in full, refinancing the outstanding balance or rehabilitating it.

You will receive a notification only once to be sent to your last known address informing you that there will be an offset to your tax refund which will begin in 65 days. 

Can The Offset Be Appealed?

You can work with your loan holder if you want to appeal for your tax refund treasury offset. Everyone has the right to an administrative review of debts. With this, disputes about the amount of debt will be resolved as well as the possibility to rehabilitate the student loans or agreed to pay a lesser amount if you can’t pay the full amount over time.

There are significant reasons to appeal for your offset. It may be that you are qualified for a closed-school discharge or because of forgery or other reasons that you are not enforceable for the loan. It may also be that your refund due was not paid by the school or maybe that you and your loan holder are in a repayment agreement.

The process of returning your tax refund if you are successful in your appeal will take up to two months and you can only have a successful appeal only once. 

Wage Garnishment 

When a portion of your salary or wage is obtained by an authorized third party directly from your employer until your debt is repaid, it is called wage garnishment. This is possible in civil proceedings such as consumer debts, student loans, and child support. A court order must be obtained by the third party to be able to do the garnishment. Wage garnishments can also be issued by the federal and state loan holders as an administrative action, meaning a court order is not needed.

How To Handle Wage Garnishment 

Usually, wage garnishment takes at least a year of default and other administrative procedures. The Department of Education is not always using wage garnishment in an effort to recover a student loan debt that is defaulted. But, when it does so, up to 15% of your disposable income is collected.

It may be that your loan is a private loan and not a federal loan if to recoup a student loan debt your wages are being garnished.

You can figure out a new payment arrangement with your lender or withstand with the garnishment until your loan is fully paid.

You can also file for a dispute in the court. You may avail of free legal help from law school clinic programs or from the local legal aid programs.

Some of the reasons for appealing your wage garnishments may include permanent disability, status has mistakenly defaulted, the loan is paid in full, you are a victim of identity theft or the loan is discharged in bankruptcy.

Garnishments for Retired Military Personnel And Federal Employees 

Federal employees can also have their salary, tax refund, and work travel reimbursements garnished.

Retirement pay of the retired military personnel who has unpaid debts can also be garnished. Active duty and retired military personnel may consult the Defense Finance and Accounting Service to know more about how it will affect their benefits.

There are a lot of excluded federal benefits from offsetting through more than two dozen federal agencies. Some may affect the veterans and activity duty military personnel.

For those who have defaulted on their student loans in the federal and they are expecting a tax refund this year, it is best to immediately get out of the default. Visit the website of the Department of Education and check for better repayment programs. You can also ask help from a financial counselor to help you immediately take steps to avoid the offset.

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