How to Challenge a Student Loan Tax Refund Offset

If you get an IRS notice of tax refund offset for a student loan, you can object to the offset on various grounds. Learn how.

By , Attorney

If you don't pay your student loans, you may not receive tax refunds that are due to you. Read on to find out what defenses you may have and how you can challenge a tax refund offset.

What Is a Tax Refund Offset?

If you default on a student loan, the Department of Education can use several different methods to collect student loans. In one of those, called a tax refund offset, it refers the debt to the U. S. Treasury Department for collection. The Treasury Department then applies any tax refunds due to you to the payment of the student loan debt.

(To learn about other ways the Department of Education can collect defaulted loans, see What Happens If You Default on Your Student Loans.)

Who Can Initiate the Action?

The Department of Education initiates the referral to the Treasury Department. The Department of Education can do this for:

  • loans due to the Department of Education
  • loans guaranteed by the Department of Education, or
  • loans due to private lenders or guarantors who have requested assistance from the Department of Education.

Will I Receive Notice That My Refund Is Being Offset?

Under federal law, you must be given advance notice of the proposed offset. The notice will advise you of the proposed offset, including the nature and the amount of the outstanding debt. The notice must also advise you of your right to:

  • inspect and copy records relating to the debt
  • obtain a review of the loan obligation if you do not agree that you owe the amount claimed, and
  • enter into a written agreement to pay the debt you do owe.

Deadlines for Document Inspection and Review Requests

If you want to review documents related to the tax refund offset, be aware of these deadlines.

Inspection and copying records. You have 20 days from the date of the notice to request inspection and copying of loan records.

Requesting a review. If you have not requested inspection, you have 65 days from the date of the notice to request a review. If you have requested inspection and copying, you have 15 additional days after the documents have been made available to you to request a review.

How to Request a Review

To request a review, include your name, social security number, the loan information, a written objection to the debt, whether you are requesting a hearing in person or by telephone, and provide any documents which support your objection.

Common objections that could affect your loan include:

  • payments have not been properly credited
  • identity theft
  • loan cancellation or discharge in bankruptcy
  • refund due but not received from school
  • school closed during loan period, or
  • school improperly determined that you would benefit (no GED or high school diploma).

(To learn more about these objections, see How to Get Out of Student Loan Debt.)

Stopping the Offset and Future Offsets

If you do agree that you owe part of all of the debt, or your objections are denied, you will need to make a timely agreement to pay the debt and begin to pay in order to stop the offset and avoid future offsets.

If you do not request documents or a review, you have 65 days to make an agreement and pay your first payment. If you requested documents, you have 15 days from the date that the documents were mailed to you. If you objected to the debt and your objection was denied, you have seven days from the date of the denial.

Options for Repayment, Deferral or Cancellation

If you owe the debt, you might consider the following options:

Repay the loan. This can be done by paying the entire amount due under the original terms or through a repayment plan. Repayment plan range from a standard, fixed payment amount plans to income contingent and income specific plans. To learn more about the available plans, see Student Loan Repayment Options.

Rehabilitate the loan. This is generally done by making at least nine voluntary monthly payments of an agreed amount over a ten-month period. At the end of the period, the loan will no longer be considered in default and refunds will no longer be offset. Default status sent to credit agencies will be deleted and you will once again be eligible for benefits such as deferment and forbearance.

Apply for a Deferment. A deferment is a period of time during which you will not have to make payments on your loan and interest will not accrue. The availability of deferments may depend on the type of student loan you have and the date on which it was taken out.

There is no limit to the length of deferments for people who are:

  • enrolled in school at least half time
  • serving in a graduate or post-graduate fellowship, or
  • attending a rehabilitation program for disabled individuals.

You may be eligible for deferments for up to three years if you are:

  • unemployed and seeking but unable to find full time employment, or
  • suffering an economic hardship.

You may qualify for loan cancellation if you are working in a service which, upon completion of time requirements, may qualify you for cancellation of all or part of your student loan.

Apply for Cancellation. If you are working in a qualifying service, you can apply for a cancellation of all or part of your loan once you have fulfilled the time requirement. To learn about the many types of cancellation programs, see our Student Loan Debt topic.

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