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Will student loans take my tax refund?

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If your federal student loans are in default status, typically your tax refund can be taken to make up the difference. That isn’t the case for the 2021 tax season, since the government’s student loan payment pause — which includes a moratorium on collection activities for federal student loans — was extended beyond this year’s tax deadline of April 18, 2022.

But with the student loan payment pause set to expire May 1, 2022, and collection activities set to resume six months later, it’s a good idea to plan ahead to ensure that your student loans stay out of default for the 2022 tax season.

Will student loans take my tax refund in 2022?

Normally, if your student loans are in default status, your tax return will be seized to cover some of the defaulted balance.

However, the government halted all student loan collections on federal student loans at the start of the pandemic, and the relief currently lasts through May 1, 2022. This means that your tax return won’t be taken to offset your outstanding federal student loan balance for the 2021 tax season. The U.S. Department of Education says that these collections will stay paused for six months after this payment pause ends.

Eligible loans include:

  • Defaulted Direct Loans.
  • Defaulted FFEL loans.
  • Defaulted Perkins Loans owned by the Education Department.
  • Defaulted HEAL loans.

That said, this is a temporary relief measure; when filing your 2022 taxes next year, this will likely not apply.

How to avoid tax refunds from being taken in the future

If you’ve failed to make payments on your federal student loans for nine months (or 270 days), your student loans are considered to have entered into default status by the U.S. Department of Education. If you default, your federal student loans could also enter into collections. When this happens, your federal income tax could be garnished by the U.S. Department of Education and the U.S. Treasury in an attempt to offset the delinquent funds. This is called a student loan tax refund offset.

You’ll know if you’re at risk of an offset through a notice in the mail from the federal government. Keep in mind that private student loans cannot take your tax refund.

The key to avoiding default status on your student loans — and, by extension, having your tax refund taken — is by making your monthly payments on time and in full.

If you’re having trouble making your monthly student loan payments, you’re not automatically destined for default status. You have options and benefits that come with your federal student loans, including:

  • Repayment plans: Income-driven repayment plans base your monthly payments on your family size and monthly income. Once you make 20 to 25 years of qualifying payments, your remaining balance will be forgiven.
  • Refinancing: Refinancing involves taking out a new private loan with a lower interest rate or lower monthly payment to replace your existing student loans. The main downsides to refinancing are that your rate is based on your creditworthiness and you’ll lose all federal benefits and protections.
  • Student loan offset hardship refund: If you’ve experienced financial hardship, you could be eligible for a student loan offset hardship refund. If you qualify, any money withheld from your tax return will be refunded to you.
  • Hardship options: If you’re in danger of defaulting, you can request deferment or forbearance, both of which temporarily pause your student loan payments.

If I owe student loans, will I get a tax refund?

It’s possible to receive a tax refund if you have student loans. Simply owing money on loans does not prevent you from getting a refund — defaulting on those loans does.

Whether you receive a tax refund depends on your unique tax situation. For instance, if you overpaid your taxes in 2021 or qualify for certain tax credits, you may receive a refund. However, if you underpaid your taxes, you may owe the IRS money.

The bottom line

The student loan tax offset has been suspended through Nov. 1, 2022. If you have federal student loans in default, your 2021 tax return won’t be taken to offset your defaulted loan balance if you file your 2021 tax return by the filing deadline.

If you think you’ll have trouble repaying your loans once the payment pause ends on May 1, 2022, consider enrolling in an income-driven repayment plan or refinancing your loans to lower your monthly payments. Alternatively, consider placing them in forbearance or deferment if you’re in danger of defaulting.

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Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Student loans editor