Don’t Let Your Tax Refund Get Garnished to Pay for Student Loans

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  • One of the worst possible outcomes of paying your taxes is to find that your refund check is suddenly gone, almost before it even existed. Where’s my refund? Good question.

    In order to pay off outstanding student loan debt. That sounds really scary, but don’t panic – your refund check will only be garnished in certain circumstances. However, if those circumstances are your circumstances, you’ll have to do a little bit of work to protect yourself and get the refund check you’re looking forward to.

    First of all, this sad situation will unfold only if your student loans are unpaid, usually for a period of 270 days or more. If this is the case for your loans, the lender of your loans will have to submit your account to the Treasury Department for tax offset. All this means is that the lender is saying, “Hey treasury, this guy hasn’t paid me back for his education. He’s getting a refund on his taxes. Why don’t you give that money to me since that’s what he should be doing anyway?” Legally, your lender does have this right, but only under certain circumstances.

    In all cases, you will be able to appeal this resolution to your student loan problems. The first step is to be vigilant. If your loan is likely to be submitted for tax offset, you must be notified well in advance. The deadline for a lender to seek out this resolution is the fall before tax season, so you may have received your notice last November or October. Ideally, you will have seen the notice and taken action back then. But let’s say you didn’t, which is likely if you have read this far in this post.

    Sometimes people find their tax refunds garnished, even if: A) Their student debt is actually paid off, B) They have been maintaining their payments, C) the original policyholder is dead, D) the garnishment is related to a debt account that is not theirs, due to identity theft, E) the debt has been discharged due to problems with the educational institution in question, F) the Loan has been refunded, G) You are in bankruptcy.

    If any of the above is true of your account, don’t hesitate to appeal the garnishment of your tax refund with the loan holder. You have a couple of months to do this. The appeal request must be made in writing to the address of the loan holder, visible on the original notification you received in the Fall. If you didn’t receive one, or can’t find it, contact the lender and request this information. You will be scheduled a hearing, and your refund will be held until the resolution of that hearing, at which point the funds will be released either to you or to the lender.

    Of course, none of this is great news, but it does show a way out for people who have found their tax refund garnished, either completely or in part. The best way to avoid this is to pay off the debt on its given schedule, but if this has not been possible for one reason or another, use the legal remedies available to you.

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