If you got behind on making your student loan payments, your wages, benefits, and tax refund can be garnished. This is called “involuntary collection”
The federal government has very powerful collection tools and it can use them without a court order and with no time limits!
The tax offset program allows the government to take your tax refund if you are in default on federal student loans. They can even take tax refunds from programs like the Earned Income Tax Credit.
If you get a notice of an offset:
If you get a warning notice:
To avoid a tax offset:
You can challenge a tax offset if:
For FFEL loans, garnishment won't start if you request a hearing within 15 days of the notice.
For Direct loans, garnishment won't start if you request a hearing within 30 days of the notice.
You may be able to challenge the garnishment if:
You are within the first 12 months of having a job again after you lost your last job.
You are making payments toward a repayment agreement.
The school didn't pay a refund.
You shouldn't have to pay because of death or total and permanent disability.
You have a borrower defense to repayment (like school misconduct)
The loan isn't enforceable (forgery, etc.) or is dischargeable (closed school or false certification)
You have a financial hardship
More about Financial Hardship
If a garnishment order is issued, the Department of Education won't consider your request for financial hardship for six months.
A hardship should be granted if your income is less than or equal to your expenses. You will need to give the Department a Financial Disclosure. Make sure to back up any expenses you claim (like rent, utility bills, etc.) with as much proof as possible.
To make a decision about whether or not to grant your hardship claim, the Department will compare your expenses to national averages. If your expenses are different than national averages, you should be ready to explain why.
The Department uses averages that are determined by the Internal Revenue Service. You can learn more about these average expenses on the IRS website.
When you get a notice of offset:
You must request a review within 20 days of getting the notice.
You have the right to set up a repayment plan with the loan holder before the offset takes effect.
Request a hardship
You may be able to have the offset suspended
You must send the following:
Notification letter showing the amount of the federal benefit
Proof of yearly income
Financial statement (within 10 days) – if the situation is an emergency, may submit equivalent information such as an eviction notice or a court order of foreclosure in writing with the completed financial statement
A letter explaining any exceptional circumstances with supporting documentation