How to Avoid the IRS Taking Refunds Because of Student Debt

When you take out student loans, you sign a contract committing to repay the debt. One of the consequences of not paying the debt is that the lender can offset your federal tax refund. When this happens, rather than sending you a refund when you file taxes, the IRS sends the money to your lender to repay your student loan. There are a few things you can do to help avoid getting to the point of having your tax refund offset.

Instructions

1

Pay your monthly student loan payments on time every month. Make a budget and plan where your money goes so you know you have enough to pay your student loan.

2

Apply for a deferment or forbearance if you are experiencing financial difficulty and do not think you will be able to make your payments as scheduled. Contact your lender to fill out an application.

3

Change your repayment plan by calling your lender or logging onto the loan management area of the website. Many lenders offer extended repayment plans to make your monthly payments more affordable. The federal government also allows students to sign up for income-based repayment, which limits monthly payments to a percentage of the student's disposable income.

4

Call your lender to arrange loan rehabilitation if your loan is currently in default. The loan usually goes into default when you fail to make payments for 270 days. At this point, you are in danger of having your refund taken to pay your loan. If you enter loan rehabilitation and start making payments again, the lender will not take your refund.

5

Read the notice sent to you at least 65 days before the lender sets up a tax refund offset order and respond to stop the order. The two ways to stop your tax refund from being taken at this point are to prove that the debt is not actually yours or to begin repaying the loan voluntarily again.

6

File a financial hardship claim with the Department of Education or the lender who is trying to collect on the student loan if having your tax refund offset would cause you severe financial hardship. For example, if you were counting on this money to pay your rent or cover medical bills, you might be able to get the refund because of financial hardship. In most cases, you will need to send your tax return or other proof of income, copies of your bills and an explanation of why you need the refund.