How To Stop Student Loan Tax Garnishment and Protect Your Refund

An estimated 4 million federal student loan borrowers were in default as of the last quarter of 2024, according to Federal Student Aid. If you're one of them, you could be at risk of student loan tax garnishment. This is when the government takes your tax refund to cover defaulted federal student loans.

Losing your tax refund can be a major setback, especially if you're already struggling to make ends meet. But you're not powerless. If you're in default or behind on your federal student loans, here's what you need to know about student loan tax garnishment and how to protect your refund.

What is student loan tax garnishment?

Student loan tax garnishment is when the federal government takes all or part of your tax refund to pay off defaulted federal student loans. This process begins when a borrower is in default, which typically happens after 270 days of missed payments on most federal student loans.

“Many borrowers don't realize that if they are in default on their federal student loans, the federal government can refer them to the Treasury Offset Program,” says student loan attorney Adam S. Minsky. “This program allows the government to intercept federal tax refunds and apply it to their loan balance.”

Current student loan refinance rates

How does student loan tax garnishment happen?

Once your federal student loan is in default, your loan servicer can refer your account to the Treasury Offset Program (TOP). The TOP is a centralized system that can seize certain federal and state payments, including tax refunds and Social Security benefits to cover outstanding debts owed to federal or state agencies.

The amount garnished depends on the type of payment:

• Social Security benefits: The TOP can collect up to 15% of your benefits for defaulted student loans or other government debts.
• Federal tax refunds: These are subject to 100% garnishment. If your tax refund is less than your total loan balance, the government can take the entire amount.

If your tax refund isn't enough to cover the full debt, other payments could also be garnished. For example, the TOP can take up to 15% of Social Security benefits or wages from federal and state government employees until the debt is fully repaid or the loan is brought back into good standing.

However, if the full refund isn't needed to pay off your debt, you'll receive the remainder. And as Minsky points out, “If there's no refund, there's nothing to seize.”

How to stop student loan tax garnishment

Here are the most effective ways to stop student loan tax garnishment:

• Check your loan status before filing your taxes: If you're not sure whether your loan is in good standing, delinquent, or in default, check with your loan servicer before you start the tax filing process. If you're behind on payments, talk to your loan servicer about how to return your loan to good standing.
• Rehabilitate your loans: Loan rehabilitation allows you to get out of default by making a series of agreed-upon, on-time payments. This not only stops tax garnishment but also removes the default status from your credit report. To start the rehabilitation process, reach out to your loan servicer.
• Consolidate defaulted loans: If you have defaulted federal student loans, consolidation lets you combine them into a new loan with a fresh repayment term. This process can get your loans out of default in as little as 3 months, which can prevent your tax refund from being garnished.
• Repay your loans in full: Paying off your federal student loans completely will eliminate your debt and any risk of tax garnishment. While this isn't an option for most borrowers, it's the most straightforward way to stop garnishment if you have the means to do so.
• Make a valid objection to the garnishment: You can object to the garnishment if you don't owe the debt, you're current on your payments, you're in bankruptcy, or you're permanently disabled. To dispute the garnishment, fill out and submit the Request for Review Form that comes with your TOP notice. Providing evidence to support your claim can help you avoid having your tax refund seized.

Can I get my garnished tax refund back?

If you're facing serious economic hardship, you may be able to request your tax refund back after it has been garnished. You'll need to file Form 8944, Hardship Waiver Request, with the IRS. You'll also need to provide documentation that demonstrates your need for the refund to pay for essential living expenses, such as food, housing, medical costs, or transportation.

Steps to prevent future tax garnishment

The best way to stop a future tax garnishment is to avoid default in the first place. Here are some of the best proactive steps to take:

• Enroll in autopay: You can avoid missed payments by having your monthly student loan payment automatically deducted from your account.
• Communicate with your loan servicer before defaulting: If you're struggling to make payments, contact your loan servicer as soon as possible. Even if you've already missed a payment, reaching out before you enter default gives you more options for getting back on track. Your loan servicer can help you explore alternatives to avoid default.
• Consider deferment or forbearance: If you need a temporary break from payments, deferment, or forbearance can keep your loan in good standing without risking default. Just keep in mind that interest may continue to accrue, which could increase your total balance.
• Switch to an income-driven repayment (IDR) plan: IDR plans calculate your monthly payments based on your income and family size to help make them more affordable.