Student Loan Tax Refund Offset

If you owe money on a student loan, the Department of Education can request that the IRS transfer the amount of a tax refund, to be used to offset against student loan debt.

An Example

You owe the Department of Education $40,000 in past due student loans. You are owed a refund of $3,200 from the IRS. The Department of Education can send notice to the IRS to demand the tax refund of $3,200 to the Department of Education, to be applied to the past due loan balance of $40,000.

You can appeal the offset to the Department of Education. Typical reasons for an appeal are

a. you repaid the loan

b. you have a repayment agreement in place

c. the borrower is dead

d. the borrower is disabled.

e. you are entitled to a loan discharge as the school which you attended has closed.

Unfortunately, I have seen numerous instances of tax refund offsets, and little success in preventing or stopping or recovering funds from an offset.

However, there are several things which debtors should do to avoid or minimize the tax refund offset. First of all, try to avoid a large tax refund at the end of the year; often, this is done by reducing the amount of withholding from wages by an employer. For taxpayers filing a joint tax return with a spouse, the full refund is subject to offset regardless of which taxpayer has provided the income and amount withheld; therefore, in certain cases, it may be best to file “separately” to minimize the amount subject to offset (although the total tax due may be higher).

Attorney Robert M. Singer

2572 Whitney Avenue

Hamden, CT 06518