It’s tax time and you know what that means – refunds! While many people are planning how to spend their tax refunds, for some unlucky student loan borrowers, their refunds may never come.
Student loan borrowers who are in default and have overdue student loan payments may have their tax refunds garnished in order to recoup that debt. That’s right — the government will come find you and take your money if you have outstanding student loans in default.
Clearly, you can’t run away from your burdensome student loan payments. But there are ways you can avoid this undesirable situation and keep your tax refund to yourself, even if you’re struggling to make student loan payments.
Step 1: Pay your student loans on time
If you want to avoid having your tax refund taken for student loan payments, the key is to pay your student loans on time each and every month. It seems like obvious and simple advice, but keeping up with your payments will help you avoid the government’s wrath and won’t make you subject to tax refund garnishment.
Step 2: Contact your loan servicer if you’re having issues making payments
Tough times can happen to anyone; it can be hard to manage all of your financial responsibilities and your student loans when they do, especially if there’s nothing left over at the end of the month to put toward your payments.
If at any time you’re struggling to repay your student loans, contact your loan servicer to discuss your options.
If you have federal student loans, you may be eligible for an income-driven repayment plan that will lower your payments, even to zero dollars if you meet certain guidelines. In addition, you may want to consider deferment or forbearance so you can postpone your student loan payments until you’re back on your feet.
However, keep in mind you’ll probably end up paying more interest in the long run with these options — which may be worth it, in order to save you from a garnished tax refund and keep your loans in good standing.
“For anyone overdue on payments, the reality is … life has probably happened,” said Adam Carroll, Chief Education Officer at National Financial Educators and the creator of the student loan debt documentary Broke, Busted & Disgusted.
“The good news is that student loan servicers understand that these things happen, but they don’t know unless you make the call and figure out a solution,” he explained.
Step 3: Don’t wait, consolidate
If you’re a few days late on your student loan payment, they are technically overdue. But that doesn’t mean they’re in default yet.
The U.S. government only comes after student loan borrowers who are in default, which means they haven’t made any payments for a period of 270 days. While you may pay a late fee if you miss a payment, your loans only enter default after nine months of not making payments.
If you find yourself in that situation, one way to get out of student loan default is through a Direct Consolidation Loan. Consolidation involves paying off all of your existing student loans with a new, single loan. This also results in just one monthly payment to worry about, with one interest rate.
In order to be eligible for this option, you must make payments under an income-driven plan or make three consecutive payments on the loan before you apply for consolidation.
Working to get out of default ASAP can help you avoid your tax refund being garnished and put you back in good standing with your loans.
Step 4: Rehabilitate your loan
If your loans are in default and you want to avoid student loan tax refund garnishment, consider rehabilitating your loans to get them in good standing. The process of rehabilitation is a bit more complicated than consolidation, but can help you get out of default.
Through loan rehabilitation, you must make nine consecutive payments on time. Under this option, you will be set up with a reasonable payment plan, with monthly payments that are equal to 15 percent of your discretionary income.
Step 5: Contact the IRS
If your student loan payments are overdue, unfortunately, the government is well within its rights to come after and garnish your tax refund. Through the Treasury Offset Program (TOP), the government can seize your refund in order to repay your defaulted student loans.
But having your tax refund garnished should come as no surprise. You will receive a notice letting you know that a tax offset will occur before any action is taken.
If you didn’t get a notice or have any questions or concerns regarding the tax offset, you can contact the IRS at 800-304-3107.
According to legal site NOLO, student loan borrowers have 65 days from the time of the notice to request a review and object to the tax offset. You may want to object if there’s been a misunderstanding surrounding your student loan payments or if your loan is in the process of being forgiven or discharged.
The best way to avoid a student loan tax refund garnishment is to keep making payments. If you’re struggling to keep up, get in touch with your loan servicer to discuss options.
If you’re already dealing with a potential tax offset, contact the IRS as well as your loan servicer to figure out your next steps. Just don’t ignore the problem, because there’s help out there.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|