Did you know that the government can take your tax refund to collect your defaulted federal student loans?
The government has begun seizing tax refunds from borrowers in default for the first time since 2020. It can even take refunds that include thousands of dollars of Child Tax Credits and Earned Income Tax Credits — financial lifelines for working families. Read on to find out how to check if you’re on the list for tax refund seizure, how to protect your tax refund, and how to get your federal student loans out of default.
Generally, federal student loans default after 9 months of nonpayment. There is no time limit on collection of federal student loans, so even if you haven’t heard anything about your loans in a long time, the government could still act to collect your debt.
How can you tell if the government is going to take your tax return to collect your student loan debt? Dial before you file.
Before you file your taxes with the IRS, call the Treasury Department’s Treasury Offset Program Call Center at 1-800-304-3107 to see whether you are on the list to lose some or all of your federal tax refund to collect overdue federal debt.
The government will generally not reach out to tell you that it is going to take your tax refund before it takes it. It may only send one notice when your debt first goes into collection, and many people don’t see it. However, each year, the government creates a list of people who owe the federal government money and who may have their tax refunds taken. The Treasury Department operates the Treasury Offset Program Call Center, a hotline at 1-800-304-3107, that anyone can call to learn whether their name is on the list for some or all of their tax refund to be taken.
When you call, you may not talk to a person. The hotline will ask you to enter your social security number twice to look up whether your name is on the collection list. If your name is on the collection list, the hotline will tell you which federal agency has referred your debt to the Treasury Department for collections. If the Department of Education referred your debt, you probably have student loans in default.
You can double-check if your federal student loans are in default (and get information about who to contact about those defaulted loans) by logging into your account on studentaid.gov. For more information, click here.
If your name is on the list, the government will seize some or all of your tax refund to collect your outstanding debt unless you take additional steps before filing your taxes.
Names can be added and removed from the list, so consider calling to check if you are on the list now and then calling again right before you plan to file your taxes.
Ways You Can Protect Your Tax Refund If Your Name Is On the List
If your name is on the list to have your tax refund seized, you should consider filing an extension to file your taxes before October 15th to give you more time to get your name off the list before filing.
If you are on the collection list because of defaulted student loans, the best way to get your name removed from the list is to get your federal student loans out of default. Getting your student loans out of default can take anywhere from roughly one to ten months depending on which steps you use to remove them from default and how quickly the government processes your requests. Information about your options on removing your loans from default is below. If you file after your loans are removed from default, the government will not take your tax refund to collect your debt.
After getting your loans out of default, call the Treasury Department’s Treasury Offset Program Call Center at 1-800-304-3107 again before filing your taxes to make sure the government has taken your name off the list for tax refund seizure.
Depending on when you act to remove your loans from default, you may not be able to remove your name from the list by the October filing deadline. If you are entitled to a refund and don’t owe the IRS money, you can file your taxes and still get your refund even after the extended deadline in October (as long as you file within 3 years and get your loans out of default before filing). But talk to a tax professional for more information about whether you should wait to file until your name is off the collection list. There could be downsides to filing your taxes late, depending on your situation. If it turns out you actually owe the IRS money, you’d owe a late-filing penalty if you file after the extended deadline.
Note: if you file your taxes jointly with your spouse but only one of you has defaulted federal student loans, consider talking to a tax preparer about whether you can file an Injured Spouse Allocation Form (IRS Form 8379) with your tax return or separately afterwards to protect a portion of your joint tax return.
Steps You Can Take To Remove Your Loans From Default
Apart from fully paying off your loans, there are generally two ways to get your federal student loans out of default:
In addition, you may be eligible to have your loans cancelled through a loan cancellation or discharge program, which would also stop collection.
Each of these options have different pros and cons, discussed below. In addition, you can find more information about each method out of default here.
Consolidation
What is it?
When you consolidate defaulted federal loans, you borrow a new federal loan that pays off the defaulted loans — including any accrued interest, fines, or fees on the defaulted loans. The defaulted loans are paid off and the new consolidation loan is in good standing. Generally, consolidation is one of the fastest ways to get your loans out of default. More general information about consolidation is available here and more information about consolidating out of default is here.
Who is eligible?
Most borrowers with federal student loans in default are eligible for consolidation. The primary reasons you may not be eligible to consolidate loans out of default are:
- If you only have a single Direct Consolidation Loan, then you cannot consolidate it again (unless you also have another loan to consolidate with it).
- If your student loans are currently being collected through wage garnishment or if there is a judgment against you from a federal student loan court case.
Are there downsides to consider?
Yes. If you consolidate your loans right now, there is a risk that you may lose any time towards IDR forgiveness that accrued on your loans before consolidating. So if you’ve spent many years making payments on your loans and are close to having your loans forgiven through IDR, consolidating could delay when your loans are eligible for forgiveness. In addition, if your consolidation loan is disbursed after July 1, 2026, it will have different repayment options than loans disbursed before that date. More information on the pros and cons of consolidating loans is available here and information comparing consolidation to rehabilitation is available here.
How do I consolidate my loans out of default?
To consolidate defaulted loans, you can either log in to your account on studentaid.gov and complete an online consolidation application, or you can submit a paper application. Applying online is generally easier and faster, and has faster processing times and less risk of error. If you submit a paper application, you will also need to submit an application for an income-driven repayment plan and attach documentation of your income, or agree to make three, on-time, full payments before the loan is consolidated. For most borrowers, applying for an IDR plan will be the most affordable and straightforward option.
When you submit a consolidation application, you will need to select which loans you’d like to consolidate: Make sure that you select all of your defaulted loans. You can learn which loans are in default by logging in to your student loan account on studentaid.gov and going to the “My Aid” page and scrolling down to loan details. Loans that are in default will say “default” in the loan status column.
For more information on how to apply for consolidation, click here.
How long does it take for my loans to be removed from default?
Generally, it takes the Department of Education 4-6 weeks to complete a consolidation from the date you apply, but the Department says it can take up to 3 months.
Rehabilitation
What is it?
When you rehabilitate a loan, you make an agreement with your loan holder to make 9 months of full, on-time, reasonable and affordable payments, after which your loans will be put back into good standing. Your loans will not be removed from default until you have made the 9 months of required payments. More detailed information about rehabilitation is here.
Note: If you start making payments in a rehabilitation agreement after January, you may not be able to complete the rehabilitation and remove your loans from default by October (the tax filing deadline if you request an extension). If you make 5 rehabilitation payments before filing your taxes, the Department of Education says that you may be able to stop the government from taking your tax refund — however, there is no guarantee. If you choose to try to protect your tax refund by rehabilitating your loans, then you should make sure to call the Treasury Offset Program Call Center at 1-800-304-3107 before filing to see whether they’ve taken your name off the list for tax refund seizure.
Who is eligible?
Most borrowers are eligible for loan rehabilitation. However, right now you can only complete a loan rehabilitation on a loan once. (Beginning in July 2027, borrowers will be able to rehabilitate twice.) If you started but did not complete a rehabilitation in the past, you can still use rehabilitation to get your loans out of default.
Are there downsides to consider?
Loan rehabilitation takes much longer than consolidation, is more complicated to set up, and requires that you carefully watch your mail so that you can send back the required documentation. If you do not make 9 months of on-time, full payments, your loans will not be removed from default. More information comparing rehabilitation to consolidation is available here.
How do I rehabilitate my student loans out of default?
To start the rehabilitation process, you’ll need to contact the group in charge of collecting on your defaulted loan (often called the “loan holder”). To determine who you need to contact, you can log in to your account on studentaid.gov, or you can call the Default Resolution Group at 1-800-621-3115 and ask who you should contact about rehabilitating your loans out of default. If you have Direct Loans or other loans held by the Department of Education, you will need to talk to the Default Resolution Group to set up a rehabilitation agreement. But if you have other loan types, you may need to call a different phone number.
When you call your loan holder, you can ask to set up a rehabilitation agreement.
Make sure you ask for a rehabilitation agreement — not a payment plan or repayment agreement. Only rehabilitation agreements will remove your loans from default.
When you ask for a rehabilitation agreement, your loan holder will ask you for information about how much money you make so they can determine your monthly rehabilitation payment amounts. They will then ask you to submit documentation, usually your tax filings, proving how much money you make and will send you a written rehabilitation agreement that lists how much you must pay each month in the rehabilitation agreement. You must sign and return the agreement and provide documentation proving your income for your rehabilitation to begin. For more information about what to expect when entering into rehabilitation, click here.
After 9 months of on-time, full payments, your loans will be removed from default and placed back into good standing. It is important that you have a plan for repaying your loans moving forward once your loans are removed from default.
If you cannot complete your rehabilitation agreement before filing your taxes, call your loan holder and see if it will agree to stop collections. It may be possible to stop collections if you agree to rehabilitate soon after receiving a notice of default or after 5 months of rehabilitation payments. However, this may not work in all cases. Before you file your taxes, make sure to call the Treasury Department’s Treasury Offset Program Call Center at 1-800-304-3107 to confirm that your name is not on the list.
Loan Discharge and Cancellation Programs
Federal student loans, including loans in default, can be cancelled (also called “discharged”) in certain situations, such as if you are unable to work due to a permanent disability. If all of your loans in default are cancelled, then you will no longer have loans in default and will not have your tax refund seized.
But it can take months (or sometimes even years) for your loan discharge application to be decided. In some discharge programs, like the Total and Permanent Disability Discharge Program, the government should stop collections (including stopping any tax refund seizures) once it has received your application. However, this is not guaranteed for all discharge programs, and even when it is guaranteed the government might not quickly remove you from the list to have your refund seized. If you have submitted a discharge application, you should still call the Treasury Offset Program Call Center at 1-800-304-3107 to confirm that your name is not on the collection list before filing your taxes. If you are on the list, consider contacting the Default Resolution Group or your loan holder to tell them that you have applied for a discharge and ask if collections can be stopped.
