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How To Stop Student Loan Tax Garnishment

The federal government can legally seize 100% of your tax refund to pay off your defaulted student loans. Here’s how to avoid it.

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By Janet Berry-Johnson

Written by

Janet Berry-Johnson

Writer

Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.

Edited by Renee Fleck

Written by

Renee Fleck

Editor

Renee Fleck is a student loans editor with over five years of experience in digital content editing. Her work has been featured in Fast Company, Morning Brew, and Sidebar.io, among other online publications. She is fluent in Spanish and French and enjoys traveling to new places.

Updated December 13, 2023

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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Credible takeaways

  • Student loan tax garnishment is when the government takes a portion (or all) of your tax refund to pay off your defaulted federal loans.
  • Tax garnishment is temporarily suspended through September 2024 thanks to the Fresh Start program. 
  • Private lenders are generally not able to garnish your tax refund.
  • The best way to stop student loan tax garnishment from happening is to avoid defaulting on your loans.

Student loan tax garnishment is when the federal government takes some or all of your tax refund to pay off defaulted student loans. Having your tax refund taken away can feel like being kicked when you’re down — especially if you’re already struggling to afford your student loan payments.

Whether you're currently facing default or trying to avoid it, here's how you can stop student loan tax garnishment and regain control over your loan repayment.

How student loan tax garnishment works

Student loan tax garnishment happens through a government-run program called the Treasury Offset Program (TOP). This program allows the government to collect outstanding debts owed to federal and state government agencies by seizing certain federal payments, such as tax refunds or Social Security benefits.

If you have an outstanding student loan debt, you may receive a letter from the Treasury Department notifying you that your tax refund is at risk of being seized. 

Act now to get relief with Fresh Start

During the COVID-19 pandemic, the government paused student loan collections on all federal loans, including tax refund offsets. That pause ended in September 2023. However, the U.S. Department of Education said it will postpone tax refund offsets until at least September 2024. 

To help defaulted borrowers, the Education Department created the Fresh Start program. This option allows borrowers who have defaulted on federal student loans to get out of default quickly, giving them access to income-driven repayment plans, loan forgiveness programs, deferment, and forbearance.

To take advantage of Fresh Start, you must contact your loan servicer and ask to be enrolled in the program by the end of September 2024. They will remove your loan from default and transfer it to a new loan servicer.

Check Out: What Happens if You Never Pay Your Student Loans?

What happens after you get a tax offset notice?

If you receive a tax offset notice from the Treasury Department, it will show the original amount of your tax refund and the amount the agency will take to pay your defaulted student loans (or other federal debts). You can request a hearing to stop the tax refund offset. The notice provides instructions for requesting a hearing. 

After deducting the offset amount, the Treasury Department will send you a check or direct deposit for any remaining refund. 

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Important:

If you didn’t get a letter, you should call TOP at 1-800-304-3107.

How to stop tax garnishment

If you have federal student loans in default, the Fresh Start program is the best way to get out of default and avoid student loan tax garnishment. Here are a few more ways to stop tax garnishments once the Fresh Start program ends. 

1. Pay the balance in full

The most straightforward way to stop tax garnishment is to pay off your student loan balance in full. While this might not be feasible for everyone, it immediately stops the garnishment process and clears your debt, freeing you from future financial obligations related to the loan. 

2. Apply to consolidate

Consolidating your student loans can be a smart move. This process involves combining multiple federal student loans into a single new federal loan with a new repayment term. 

By consolidating, you can get your loans out of default in as little as three months and avoid tax garnishment. However, it’s essential to act quickly, as consolidation can take time to process. Also, if you struggle to afford your new payment once you’ve consolidated your student loans, you could be back in default in the future.

Check Out: Student Loan Consolidation: Is It Right for Me?

3. Negotiate your repayment terms 

Negotiating your repayment terms — a process known as loan rehabilitation — can be a good option for getting your student loans out of default. Under a loan rehabilitation agreement, you make a set number of consecutive payments to your student loan servicer. For most loans, those payment amounts are based on your income. 

Once you make the final payment, the lender removes your loan from default. Any collection actions, including tax refund garnishments, will stop. You can then resume making normal payments or apply for an income-driven repayment plan.

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Important:

Loan rehabilitation has been temporarily replaced by the Fresh Start program. This option will become available again once the Fresh Start program ends in 2024.

4. Request a review of your account

If you don’t believe you owe the debt or disagree with the amount the agency says you owe, you should contact your student loan servicer. The offset notice should have your loan servicer’s contact information, but you can also find it by logging in to your account at StudentAid.gov.

Strategies to avoid default 

Here are some strategies to prevent going into default on your student loans:

  • Federal consolidation: Consolidating your federal student loans involves combining multiple loans into one. This can simplify your payments and potentially reduce them, making your debt easier to manage. 
  • Deferment or forbearance: If you’re facing a temporary financial hardship, consider applying for deferment or forbearance. Deferment allows you to temporarily stop making payments or reduce your payment amount without accruing interest on subsidized loans (unsubsidized loans will accrue interest). Forbearance can suspend or reduce your loan payments for up to 12 months, but interest continues to accrue on all loan types.
  • Income-driven repayment: Income-driven repayment plans adjust your monthly payments based on your income and family size. This can make your payments more affordable, and some borrowers may be eligible for $0 monthly payments.
  • Private refinancing: If you have private student loans or a mix of private and federal loans, refinancing can be a viable option. This involves taking out a new loan with a private lender to pay off your existing loans, potentially securing a lower interest rate. However, keep in mind that if you refinance federal student loans, you lose access to benefits like income-driven repayment plans, loan forgiveness, and the Fresh Start program. 

Check Out: Should I Refinance My Student Loans?

Student loan tax garnishment FAQ

To help overcome some common concerns, here are answers to some frequently asked questions about student loan tax garnishment.

Does tax garnishment apply to private student loans? 

Tax garnishment applies only to federal student loans and other debts owed to federal and state agencies. Private student loan lenders generally can't garnish your tax refunds or other federal payments, though state laws may vary. 

When does the Fresh Start program end?

The Fresh Start program is currently scheduled to run through September 2024. To benefit from Fresh Start, reach out to your loan servicer before the end of September 2024 to request enrollment in the program. As part of this process, your loan will be taken out of default and transferred to a new loan servicer. 

How much can the IRS garnish for student loans?

The federal government can legally garnish up to 15% of your disposable pay and 100% of your tax refund to repay your federal student loans.

What’s the best way to avoid student loan tax garnishment?

The best way to avoid student loan tax garnishment is to keep your loans out of default. You can avoid default by making the agreed-upon payments, exploring income-driven repayment plans, or seeking deferment or forbearance when you’re experiencing financial hardship.

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Meet the expert:
Janet Berry-Johnson

Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.