Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
In past tax seasons, borrowers with defaulted federal student loans could have their tax refund seized to repay overdue student debt. But because of extended student loan protections that were announced earlier this year, student loans won’t take your tax refund in 2022.
In fact, all federal student loans, including accounts in delinquency or default, will be given a clean slate when student loan payments resume. Here’s what you need to know about how a federal student loan default impacts your tax refund, and how to avoid losing your tax refund in the future after payments restart.
Can Student Loans Take Your Tax Refund?
During the Covid-19 pandemic, the government paused all collection activities for defaulted federal student loans—including the seizure of tax refunds, wages or Social Security payments. This “free pass” for those in default protects borrowers’ additional cash flow at a time when inflation is squeezing budgets across the country.
Before this update was announced, regular rules stated that a federal student loan account was delinquent after 90 days of nonpayment. If no payments were made for 270 days (about nine months), the account status was considered in default.
At that point, your student loan servicer can report your delinquent or defaulted debt to the Treasury Offset Program (TOP) for collection on the amount you owe.
How the Treasury Offset Program Can Withhold Your Tax Refund
The TOP, which is managed by the Bureau of the Fiscal Service, compares the federal payments that might be owed to you—like a tax refund or Social Security benefit payment—against outstanding debt that you owe the federal government.
It determines this by matching the name and taxpayer identification number (like your Social Security number) on your tax refund, against the same information on the defaulted debt.
If the agency confirms that the debt is valid and collections can be enforced on it, it applies your tax refund toward your debt. This is called an “administrative offset.” In the 2021 fiscal year, upward of $4.5 billion in delinquent debt was recovered through this process.
Will Student Loans Take My Tax Refund in 2022?
In a typical tax season, if you owe money on defaulted student loans, you may not get a tax refund. But thanks to the latest student loan relief rules, your tax refund won’t be taken in 2022 for past due student loan payments.
Federal student loan payments and loans in collections are still on administrative pause. As part of the government’s Covid-19 emergency relief effort, borrowers with eligible federal loans in default or delinquency will receive a fresh start when loan payments resume. In other words, borrowers will re-enter repayment in good standing.
Eligible federal loan types include:
- Direct loans
- Federal Family Education Loans (FFEL) Program loans
- Federal Perkins Loans held by the Department of Education
- HEAL loans
With your once-defaulted loans in good standing, the TOP no longer has the ability to collect on unpaid debt that you owed when your loans were in default. You’ll get to keep your tax refund (if you’re owed one), assuming that your federal loan account continues to remain in good standing.
When federal loan payments restart, eligible student loan borrowers that fall back into default are still protected from having their tax refund withheld for an additional six months. This means that during the entire 2022 tax season, you’re protected from an administrative offset due to a federal student loan default.
However, beginning in March 2023, tax refunds during next year’s filing season could be withheld if your loans are delinquent or in default.
How to Prevent Your Tax Refund From Being Seized
Once regular loan collection rules are reinstated, you might not get a tax refund if you owe student loans in default. If you’re worried about losing your tax refund in the future, here’s what you can do to avoid it.
- Reach out to your servicer for repayment plan alternatives. If you’d like a more manageable monthly payment plan, talk to your loan servicer to see whether you’re eligible for an income-driven repayment plan. These plans can reduce your monthly payment—sometimes as low as $0 per month—based on your adjusted gross income and family size.
- Ask about hardship options. If you’re facing a sudden loss of income or are unable to make on-time payments for an extended period, ask your loan servicer about hardship deferment or forbearance options. Generally, interest continues to accrue during this time, but you could temporarily pause your payments until your finances stabilize.
- Request a refund for an administrative offset. If you’re facing hardship and your tax refund or other money was withheld, you might be eligible for a refund for collections that occurred after March 13, 2020. For more information, contact the Department of Education’s Default Resolution Group online or at 1-800-621-3115.
Compare the best tax software of 2022