Is Student Loan Debt Affecting Your Taxes?

Did you know that there are potential tax penalties when you default on your student loan debt? According to the U.S. Department of Education, the average student loan debt was over $33,300 as of September 2018. It’s no secret that student loan debt, along with back tax debt, is a problem in the U.S. However, did you know that there are tax repercussions for defaulting on student loan payments? It happens to all of us. We graduate from college but aren’t making enough money to pay our student loan bills. It can be tough to pay back student loan debt when we have other bills. Many young people in this situation might look forward to their tax refund to help pay their bills. However, if you default on student loans, the IRS can legally garnish your tax refund.

What does it mean to default on your student loans?

If you don’t make a payment on your student loans for 270 days, you’re considered to be in default. According to, federal student loan borrowers are defaulting on loans at a higher rate. The U.S. Department of Education estimates that 11.5 percent of borrowers who entered repayment from 2013-2014 defaulted on their student loans. Student loan borrowers are defaulting on their loans for a variety of reasons. Perhaps they aren’t making enough money to pay back the debt. Alternatively, they might have other bills that keep them from paying their student loans. When you go into default on your student loans, the Department of Education can garnish your wages. Additionally, the Department can work with the IRS to use your tax refund to repay your defaulted loans. When your tax refund is garnished to pay back loans, it’s called a “tax refund offset.”

How does one end up in a tax refund offset?

In a tax refund offset, the Department of Education and IRS work together to look up taxpayer’s info in both systems. If there’s a match, federal payments such as tax refunds will be offset to settle outstanding student loan debt. In other words, your tax refund will be used to pay your delinquent student loans. However, if the IRS garnishes your tax refund because of student loan default, you might be able to get it back. 

Student Loan Tax Offset Hardship Refund

If you believe your tax refund has or will be taken to pay student loan debt, contact Platinum Tax Defenders. There are ways to get your tax refund back if having it taken will cause financial hardship. Additionally, there isn’t a time limit on making the request. However, as with all other tax-related issues, it’s essential to move quickly. 

Who can qualify for a Tax Offset Hardship Refund?

There are many situations wherein you can qualify to get your tax refund back. Below are a few examples.

–    You have filed for bankruptcy, and your case is still open

–    Filing bankruptcy led to the discharging of your loan

– You pay your loan in full

–    There was a mistake with the social security number, and someone else’s name shows up under yours.

–    You are in a repayment plan with the Department of Education and have begun making payments

– You’re permanently disabled.

–    The loan isn’t enforceable. 

To apply, you must complete a student loan tax offset hardship refund form. Also, you’ll need to show proof of your hardship. 

How can a tax offset be avoided?

There are ways to prevent your tax refund from being garnished due to student loan delinquency. Read on for steps you can take to avoid entering into a tax offset.

Don’t default on your student loans

It only takes nine months of not paying your student loans back before you enter into default status. The most important thing you can do to stay out of default is to make minimum payments on time. Also, you may want to wait to file your tax return until you’re no longer in default. Consult a tax relief professional if you are unsure how to go about delaying your tax returns.

Apply for deferment or forbearance

If you are having trouble paying back student loans, you can apply for deferment or forbearance. When you defer your loans, you postpone payments for up to three years. Another option for when you can’t repay student loans is forbearance. Forbearance is similar to deferment, but there are different eligibility rules. Forbearance will put a pause on your loan payments for up to one year. However, interest continues to add up while your loans are in forbearance. Interest can also accrue when you’re in deferment. Before deciding which route to go down, it’s best to do research and consult a professional.

Consider consolidating or refinancing student loans

If your student loan debt is too much for you to pay, consider consolidating or refinancing your loans. Consolidating or refinancing your loans will keep your loan payments low and move you to one payment. Depending on your loans, you may also qualify for low-interest rates through refinancing. 

Avoiding a tax offset is possible

It’s not impossible to get your tax refund back when you have it taken away from you by the IRS. However, it’s crucial you act quickly to ensure you get your tax refund back. Contact a tax professional before you attempt to deal with the IRS on your own. When you’re just starting in the financial world, it’s essential to get a handle on your money early, Right now, you may be in student loan debt, but it can lead to back tax debt. Get yourself in good financial shape , and you’ll be glad that you did. 

Worried about losing your tax refund because of student loan debt? Call Platinum Tax Defenders today

If you’re are afraid the IRS will seize your tax refund, talk to a tax relief specialist. A tax attorney can help you get your refund and come up with a plan to pay back taxes. The tax resolution specialist can also negotiate with the IRS on your behalf and submit any necessary paperwork. Tax debt can leave you in bad financial shape. That’s where a tax relief services company can come in handy. A tax relief specialist understands the complicated tax code, especially when your tax refund is at risk. If you’re worried the IRS may seize your tax refund, call Platinum Tax Defenders for a free consultation today.

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