What is Student Loan Tax Offset?
The student loan tax offset allows the federal government to collect debts owed if you default on federal student loans. This can occur when you fail to make a loan payment and your loan becomes delinquent. You are considered in default when you haven’t made payments on your loans for at least 270 consecutive days. This rule applies to direct loans and Federal Family Education Loans (FFEL). Regarding the Federal Perkins loan, you may be in default after the first time you fail to make a payment on time.
Who qualifies for financial hardship?
If you know you owe the student loans involved, you may be able to avoid the offset if you have a documented financial hardship. There are certain situations where you may qualify for a hardship exception if your tax refund is offset or delayed.
How to prevent student loan tax offset
If you believe you qualify for a hardship exception or think your refund has been wrongly withheld, there are some steps you can take to attempt to recover it. First, contact BFS at 800-304-3107 (or TTY/TDD 866-297-0517) for more information and to find out where your refund was applied within the Treasury Department.
Contact the agency that received your tax refund. In the case of student loans, it will be the Department of Education that is the recipient. The Department of Education should be able to tell you about the outstanding student loans that were applied against your refund. From there, you can contact your loan servicer directly to find out what to do next to challenge the offset.
This usually involves filling out a form provided by your loan servicer and submitting it to the Treasury Department. You will need to specify the reason for the financial hardship to request the exception and attach copies of any required supporting documentation (such as eviction notices, utility shut-off statements, etc.).
At this stage, the Treasury will review your request and your documentation to decide if you qualify for financial hardship. Remember that if you are granted a financial hardship exception and your tax offset is restored, that may be a one-time thing. You may not be eligible for future financial exceptions if your loans remain in default.
Conclusion
A student loan tax offset can temporarily disrupt your financial plans, but it is possible to retrieve your money if you have qualifying financial hardship. If you are struggling to keep up with student loan payments, it may help to talk to your lenders to avoid defaulting. Your lender may be able to assist you in restructuring payments or placing the loans in deferment or forbearance until your financial situation stabilizes.
Frequently Asked Questions
How do I know if my student loan is in the offset program?
If your tax refund is scheduled to be withheld for unpaid student loans, you will receive a written notice from the financial service office informing you of this. This notice is sent out 65 days prior to the scheduled offset date. If you did not receive a notice about the offset but realize that your tax refund is less than you expected, contact the tax office at 800-829-1040 (or TTY/TDD 800-829-4059).
What is the tax service number for the student loan offset program?
You can contact the tax office at 800-829-1040 (or TTY/TDD 800-829-4059) for more information or assistance in resolving a student loan offset issue. You can also reach out to the Bureau of Fiscal Service (BFS) at 800-304-3107 (or TTY/TDD 866-297-0517) to find out where your tax refund was applied in the Treasury Department.
How
Can you report paid interest through student loan tax offset in your returns?
The interest paid on student loans is reported on Form 1098-E. You can submit this form when filing your annual tax return.
What is the minimum student loan debt that will lead to a tax offset?
The Department of Education does not specify a minimum student loan debt that will lead to a tax offset. Therefore, it is important to stay informed on student loan repayments, as defaulting on any amount can result in a tax offset.
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