Defaulted student loans: Preventing tax refund seizure
Experts informed borrowers who have defaulted on their federal student loans how to protect their income tax refunds as tax season approaches.
With the recent announcement from the U.S. Department of Education regarding the recommencing of wage garnishment since 2020, borrowers in default could be at risk of having their tax refunds seized, according to a news article from The New York Times. The government will send notices at least 65 days in advance to wage garnishment, and those with older defaulted loans could expect to see their tax refunds seized sooner than others.
Student loan borrowers were encouraged to reach out to the U.S. Department of the Treasury to determine whether they are included on an offset list of those who have missed repayments for at least nine months. Borrowers who are on the list should take action prior to filing their 2025 tax returns and those who need more time to get out of default can apply for an automatic extension on their filing deadline. Student loan borrowers in default can generally take several paths to get out of default. Student loan rehabilitation involves nine on-time payments and removes the debt from the credit report, while consolidation — which involves taking out a new loan to pay off missed payments — can be quicker but doesn’t remove defaulted loans from the credit report. Other options include filing an objection to debt collection for those who are not in debt, in bankruptcy or disabled.
Read more: The New York Times
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