Note to readers: The government has halted all garnishments, retroactive to March 13, 2020, as part of efforts to ease the impact of the coronavirus, and this freeze is slated to run until Jan. 31, 2022. If any of your income tax refund or other federal payment, such as Social Security, was garnished and hasn’t yet been returned to you, try contacting the Treasury Offset Program at 1-800-304-3107 as a first step. Visit our Coronavirus Information Center for more information about how the response to the outbreak affects your student debt.
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You may be looking forward to using a tax refund to pay down debt or stay current on bills. But if your federal student loans are in default because you haven’t been making payments for several months, the Department of Education may request that your tax refund be garnished by the U.S. Department of the Treasury in a move known as a tax refund offset, or treasury offset.
This means some or all of your tax refund would go toward paying your defaulted student loans. That said, you may be able to avoid this tax refund offset, or even get back through a tax refund offset reversal. Here are tips that may help you stop student loan tax garnishment.
Specifically, we’ll look at two cases:
The good news is that a tax refund garnishment should not come as a total surprise to you. You should get a tax offset notice in the mail before tax season gets into full swing, typically in the autumn, which will give you time to act if you think you have a case to challenge it. You should only get a notice like this if your loan is actually in default, which is another fact you would likely be aware of.
The notice should inform you of your right to see a copy of records related to your debt, get a review of the loan obligation and enter into a written agreement to repay your debt.
Once you get this notice, you should closely review and monitor your current student loan status. Are you actually in default, or do you think an error may have been made? Are you dealing with an extreme financial hardship? Here are some situations in which you may be able to avoid the offset.
- You’ve filed for bankruptcy and the case is still open, or the student loan was discharged in bankruptcy (which is extremely rare but possible in cases of extreme financial hardship).
- Your loans are not actually in default, meaning some kind of error was likely made when you received the notice. For example, someone else’s loan shows up under your name because the Social Security number attached was incorrect.
- You have been the victim of identity theft.
- You’ve already entered into a repayment agreement with the Department of Education and have started making payments as required.
- You’re totally and permanently disabled.
- Your school closed and you are eligible for a closed school or false certification student loan refund.
If any of the above apply to you, you may want to challenge your tax refund offset. If you want to freeze the tax refund offset as you challenge it, file a request for review at the address provided in the notice. This should be done by the later of 65 days following your receipt of the notice or 15 days after you request and receive your loan file, which you should do to get the full picture of what you’re dealing with. You must request that loan file within 20 days of receiving the notice.
That said, you can request a tax refund offset reversal after these deadlines, and whether the refund was already garnished or not. Still, it’s best in any case to move as quickly as possible when faced with this situation.
You’ll likely need to complete a request for review form provided by your loan servicer, which you can fill out per their instructions. You may also have to provide documentation as proof of your specific situation or hardship.
It is generally quite a bit harder to plead your case based purely on hardship than it is when there has been an error. Aside from bankruptcy, you may be able to qualify for a tax refund offset hardship refund if you are unemployed and have exhausted unemployment benefits, you are currently homeless, or you are facing eviction or foreclosure. To qualify, you will likely have to have already agreed to participate in some kind of student loan repayment program. This process also may take quite a bit of time, so you’ll need to be patient.
If you do qualify for a tax refund offset hardship exception, you may not ever be able to get one again.
If you are making the request for review after the tax refund offset has already happened, you will appeal to the Department of Education.
You can contact the Treasury Offset Program at 800-304-3107 for more information.
Avoiding or reversing a tax offset after you’ve been put on notice may not be an easy process, and there is no guarantee you will be successful in your efforts. But if you believe you have a good case, you should try.
Financial hardship can impact anyone. But there are many ways you can avoid having to deal with a tax refund offset in the first place. Student loans are a type of debt that offers benefits many other loans do not, particularly if you are struggling financially. It is much easier than you might think to completely avoid default, which means you’ll never have to worry about your tax refund being garnished (not to mention the negative effect default will have on your credit score).
1. Make your student loan payments on time
It takes 270 days of nonpayment on federal student loans before official default status kicks in, although you are delinquent as soon as you miss one payment. Making minimum payments on time is the main thing you can do to stay out of default. However, if this isn’t possible due to any number of financial struggles you may be experiencing, you have several options.
2. Consider deferment or forbearance
If you know you can’t make minimum payments on time, you can try deferring your loans. When your loans are deferred, you can generally postpone payments for up to three years.
You also can consider another federal repayment option called forbearance. This is similar to deferment but has different eligibility rules. Forbearance pauses your loan payments for up to one year. Keep in mind that interest continues to add up during the forbearance period.
Depending on your loans, interest also can accrue if you’re in deferment, so do your research. Use our student loan deferment calculator to further explore this option.
You may also be able to qualify for an income-driven loan repayment program, including pay as you earn and income-contingent repayment plans. See our calculators for income-contingent repayment, income-based repayment, pay as you earn and revised pay as you earn programs.
3. Consolidate or refinance your student loans
Another way of avoiding default is to consolidate or refinance your student loans. Both options can help you keep your loan payments low and will move you toward making one payment, rather than multiple payments, per month. Depending on your loans, you could qualify for low interest rates through refinancing.
You should always check to see if you’ll lose any federal protections by refinancing with a private lender. This is one potential risk of refinancing student loans, so be sure you understand everything involved.
See our student loan consolidation versus refinancing calculator to explore which option might work best for you.
4. See if you qualify for a student loan forgiveness program
If you work in public service, education, health care or any other kind of helping profession, you may qualify for a student loan forgiveness program. This means a portion or even the full amount of your student loans may be paid off. Check out this article to see if you might be eligible for any of these programs.
Holding on to your tax refund
It can be tempting to put off paying your student loans, especially when you have other pressing bills. But doing so can put a huge damper on your finances and your credit, especially if you end up defaulting.
Do your best to avoid defaulting on your student loans and ending up in a tax offset situation. Getting your money back through a tax refund offset reversal might be difficult, depending on your circumstances. That said, it isn’t necessarily a hopeless situation, and if you find yourself facing a tax offset, you should make the effort to see if you can reverse it.
One good thing that can come out of dealing with a tax refund offset is that it can inspire you to get out of student loan default and move toward rehabilitating your financial situation. Check out Student Loan Hero’s full guide on student loan default and how to get out of it, and see our story on one borrower who went from default to almost debt-free.
Rebecca Stropoli contributed to this report.
Interested in refinancing student loans?Here are the top 9 lenders of 2022!
|Lender||Variable APR||Eligible Degrees|
|1.74% – 8.70%1||Undergrad & Graduate|
|1.74% – 7.99%2||Undergrad & Graduate|
|1.74% – 7.99%3||Undergrad & Graduate|
|1.89% – 5.90%4||Undergrad & Graduate|
|1.74% – 7.99%5||Undergrad & Graduate|
|2.05% – 5.25%6||Undergrad & Graduate|
|1.86% – 6.01%||Undergrad |
|N/A7||Undergrad & Graduate|
|1.99% – 8.38%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 4, 2022.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.
3 Important Disclosures for SoFi.
Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
4 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
5 Important Disclosures for Navient.
6 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
7 Important Disclosures for PenFed.
Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
8 Important Disclosures for CitizensBank.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 1.99%-8.38% (1.99%-8.38% APR). Fixed interest rates range from 2.99%-8.63% (2.99%-8.63% APR).
IS Variable Rate Disclosure: Variable Rates advertised are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2021, the one-month LIBOR rate is 0.09%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. Your final variable rate may be based upon the 30-day average SOFR index, as published by the Federal Reserve Bank of New York. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.