Will student loans take my tax refund?

Written by

Mia Taylor,

Edited by

Published on October 14, 2024 | 4 min read

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Key takeaways

Federal student loans are considered in default after nine months of non-payment.
Federal tax refunds can be garnished by the U.S. Department of Education to offset delinquent loan payments.
Income-driven repayment plans, refinancing and consolidation offer paths to avoid default and tax return garnishment.

The COVID-19-era student loan repayment pause has officially ended, which means student borrowers with federal loans in default may be at risk of having their 2025 tax refund seized. A federal student loan is in default if you’ve failed to make payments for nine months. However, private student loans cannot take your tax refund.

If you’re in this situation or are concerned about your loans reaching this point soon, you’re not alone. About 8.15 percent of student loan debt is in default at any given time. If you want to avoid future collections activities, now is the time to make a plan for your student loan payments.

Will student loans take my tax refund in 2025?

After pausing student loan collections during the COVID-19 pandemic, the government officially restarted loan payments last year. Loans began accruing interest and borrowers were once again required to make payments in October 2023.

If you struggle to make payments and you’re approaching nine months or 270 days of missed payments, your loan could be categorized as in default. In such cases, your federal tax refund could be seized in part or in full. The federal StudentAid website explains that tax refund garnishments were paused only through September 30, 2024. That leaves the door open for your next tax return to be taken by the U.S. Department of Education to offset your outstanding federal student loan payments.

Federal student loans include Direct Loans, Direct Consolidation Loans, Federal Family Education Loans (FFEL), and federal Perkins Loans.

Student loan offset hardship refund

If you’ve experienced financial hardship, you could be eligible for a student loan offset hardship refund. If you qualify, any money withheld from your tax return will be refunded to you.

How to avoid student loan tax refund garnishment

If the U.S. Department of Education considers your loans in default status, they could be entered into collections. When this happens, the Department of Education and the U.S. Treasury can garnish — that is, take money from — your tax return to offset the delinquent funds. The official name for this process is student loan tax refund offset.

If you are at risk, you’ll be notified by mail by the federal government 65 days before the offset. This notice will include instructions for contesting the offset. You may be able to do so if:

You did not take out the loans cited in the notice (in other words, someone fraudulently used your identity to take out student loans).
You are currently in bankruptcy.
You have already paid the debt or are not actually in default.

If you are truly in default, to avoid garnishment, you will need to bring your loans out of default. Options include:

Consolidation: Loan consolidation allows borrowers to combine their federal student loans into one, making repayment more manageable and affordable. To exit default, you must also enroll in an income-driven repayment plan and make three consecutive on-time payments. Borrowers who consolidate their student loans also become eligible for certain loan forgiveness programs.
Loan rehabilitation: This option is available for Direct Loans and FFEL Loans and involves making nine affordable monthly payments (based on your discretionary income) during consecutive months.
Paying the balance in full: If you pay off your entire principal and interest, you will no longer be in default — but this option is not affordable to most.

How to avoid default

If you’re having trouble making your monthly loan payments, you’re not automatically destined for default. Federal student loans come with options including:

Repayment plans: Income-driven repayment plans base your monthly payments on your family size and income. Once you make 20 to 25 years of qualifying payments, your remaining balance will be forgiven. Depending on your loan type, you may have to consolidate your loans first to be eligible to enroll.
Refinancing: Refinancing involves taking out a new private loan with a lower refinance interest rate or lower monthly payment to replace your existing student loans. The main downsides to refinancing are that your rate is based on your creditworthiness and you’ll lose all federal benefits and protections.
Hardship options: If you’re in danger of defaulting, you can request deferment or forbearance, which temporarily pause your student loan payments.

Read more: Your ultimate federal student loans guide

If I owe student loans, will I get a tax refund?

It’s possible to receive a tax refund if you have student loans. Simply owing money on loans does not prevent you from getting a refund — defaulting on those loans does.

Whether you receive a tax refund depends on your unique tax situation. For instance, you may receive a refund if you overpaid your taxes in 2024 or qualify for certain tax credits. However, you may owe the IRS money if you underpaid your taxes.

The bottom line

The student loan tax offset program resumed in 2024. If you have federal student loans in default, your 2025 tax refund may be at risk.

If you’re behind on payments, try using a student loan calculator to help come up with a repayment strategy and contact your student loans servicer about getting caught up. Options like income-driven repayment plans, refinancing or consolidating your loans to lower your monthly payments can make this easier. Alternatively, consider placing them in forbearance or deferment if you’re in danger of defaulting.