I’m Behind in My Student Loan Payments, But I Need My Tax Refund – What Can I Do?

Jan 12, 2015 By Evan Nielsen In Taxation No Comment Tags : , ,

Approximately 13.7 percent of federally guaranteed student loans are in default. Default rates are based on the number of students who have defaulted on at least one student loan within three years after leaving college. You usually have to be at least nine payments behind for a default to show up on your student loan record and credit report. But once you are in default, you could be in danger of losing any tax refund you may be entitled to. It’s called a tax refund offset. The IRS can intercept your income tax refund to catch up delinquencies owed to the Department of Education. It’s one of the Department’s most popular methods of collecting on defaulted loans. In fact, the Department of Education collects hundreds of millions of dollars annually this way. You can take steps to stop a tax refund offset.

Do You Qualify for a Loan Rehabilitation Program?

If you have a Federal Direct Loan or a FFEL loan, you may qualify for a rehabilitation program. What this entails is you signing a rehabilitation agreement in which you agree to catch up your delinquency in nine equal payments over nine months. At the end of the nine months, if you have made all the payments, your loan will be returned to good status. Entering into a loan repayment program may ensure that the lender will not seek to intercept your tax refund.

File a Hardship Claim

If you can show that the interception of your tax refund is likely to cause you a severe financial hardship, you can write a hardship letter to your guaranty agency explaining why the offset will negatively impact you. Collect copies of your monthly bills and your proof of income. You will need to provide the documentation with your request.

Request a Review

A review is a hearing at which you can present evidence as to why your tax refund should not be intercepted by the IRS. You must fill out a hearing request form. The hearing can take place in your choice of form, either in person, over the phone, or by mail.

If you have a student loan that is in default, and you are afraid the IRS is going to intercept your tax refund for payment, contact Nielsen Law Group. Our experienced professionals can help you explore options available to you. Call (480) 888-7111 or submit a web request here.