Yikes! My Tax Refund Was Kidnapped by an Outstanding Student Loan

How your tax refund can be seized, and how you can prevent it.

Yikes! My Tax Refund Was Kidnapped by an Outstanding Student Loan Photo (cc) by DonkeyHotey

This post comes from Gerri Detweiler at partner site Credit.com.

Many people have already filed their taxes this year — particularly those owed refunds. Because of rising taxpayer identity theft, it’s a smart idea for anyone to file quickly. However, some taxpayers are discovering the refund they thought was coming has instead been taken to pay their student loan debt.

Here’s a sample of questions recently sent to Credit.com:

  • From Amber: Is there anything I can do to stop my whole federal refund from going to my student loans? … I’ve just set up a payment plan, but I really need my refund this year.
  • From Peggy: I was looking forward to my tax refund as it will help with bills and much needed things for the baby. It was accepted and … now after digging around I found out they are sending it to the U.S. Dept. of Ed. for my student loans which I thought were in deferment. Now this is causing me and my kids a hardship but they refuse to send me the refund… What can I do to get my refund owed to me?
  • From Luis: I heard that if your student loan is in default and they are intercepting your taxes, It goes towards interest of the loan. Getting your loan out of default you can then get the intercepted (money) back. Is this true? Is there some info on this?

First, some background: If you are in default on your federal student loans (which by definition means you are behind by 270 days or more), the Department of Education can take your tax refund using the Treasury Offset Program. This program authorizes federal payments such as tax refunds or Social Security income to be intercepted in whole or in part to pay debts owed to other federal agencies. There are some limited consumer protections, but debtors aren’t always aware of them.

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