Will Student Loans Take My Tax Refund 2023

The Department of Education’s COVID-19 student loan forbearance program came to an end this September. For many Americans, it means facing another financial challenge in the near future. This naturally leads to many questions, including, Will student loans take my tax refund in 2023?

One thing is certain, and it’s that it’s best to tackle any difficult situation well-informed and prepared. While we cannot offer you every answer, we will try to shine more light on student loan tax refunds in 2023 and what tax implications you may expect after student loan payments resume.

Can Student Loans Take Your Taxes?

Typically, your tax return can be taken toward paying off your student loan. This process is called garnishment. If your student loan is in default, then the Treasury Department can subtract the money from your tax refund after you submit your tax return. In such a circumstance, this money goes directly towards paying off your student loan.

However, it’s crucial to point out that, until recently, there were some substantial changes introduced into this process. Namely, the government has halted tax refund offsets on student loans until six months after the payment pause ends.

These changes were introduced in 2020 due to the COVID-19 pandemic, and they have been in force for the last three years. However, with the end of August 2023, the student loan relief came to an end, heralding the return of garnishment in the not-so-distant future. 

Will Student Loans Take My Tax Refund in 2023?

Thanks to the introduced policies, your 2022 tax return couldn’t and wasn’t garnished. And fortunately, the same goes for the 2023 tax year.

What this means is that even though the relief ends in 2023, the student loan offset is suspended for the 2023 tax year. So, as long as you file your taxes in time, you won’t get your tax refund taken away for 2023.

This, according to the information we have today, will not apply for the 2024 tax year.

Loans that qualify for this relief measure include:

• Defaulted FFEL loans

• Defaulted Direct Loans

• Defaulted Perkins Loans owned by the Education Department

• Defaulted HEAL loans

So, if you’re asking yourself, Will my tax return go to student loans, the answer is likely yes. This is predicted to happen in the 2024 tax year, though, so no tax refund will be offset toward your student loan for the 2023 tax year.

Why Does an IRS Tax Refund Offset Happen?

That’s a great question! The Treasury Offset Program makes it possible for federal agencies or the state to collect a debt through withholding your tax refund. This does not only pertain to student loans. Tax refund offset is applied in cases of:

• child support debt

• unsettled federal and state income taxes

• unsettled unemployment compensation debts

It might be interesting to mention that not so long ago, the IRS was authorized to seize your child tax credit in order to decrease your student loan debt. This, however, is no longer true. No child tax credits can be offset towards student loans, and that will apply regardless of any student loan reliefs.

Can the IRS Garnish Your Wages?

No, the IRS has no right to offset your student loan via your wages. This right, however, is reserved for the U.S. Department of Education, which has the means to garnish a portion of your wages towards paying off your debt. This step is applied for cases when an individual fails to repay their student loan.

It takes nine months (or 270 days) of not making payments towards your student loan for the U.S. Department of Education to give your loan a default status. When that happens, it’s possible for the loan to enter into collections.

What this means is that the U.S. Department of Education and the U.S. Treasury have the right to garnish your federal income tax through what is called a student loan tax refund offset. Alternatively, these organs can offset your loan through your wages.

How can you know the garnishment takes place? You should be notified of that fact by mail.

Also, an important thing to keep in mind is that this mechanism does not apply to private student loans.

How to Avoid Tax Refunds from Being Taken in the Future?

What is the best strategy to mitigate the chance of your tax refund or wages being taken away to offset your student loan?

One foolproof method is to pay your student loan payments on time. If you know you won’t be able to do that, you should contact your loan servicer and discuss your options and potential changes in your repayment plan.

Student Loans Tax Refund – Final Word

While the student loan payments are scheduled to start in October of 2023, it’s crucial to prepare for this process and what it might entail. In the case of your tax refund, you can be sure it won’t go towards your student loan payments in the 2023 tax year. However, this relief ends this year, so you can expect the student loan tax refund offset to be fully applicable in 2024.

In the meantime, we encourage you to think about your student loan repayment plan. While this is a difficult time for many, it’s crucial to focus on preparing for what’s to come and how you can ensure your student loan will not go into default.
Find more useful resources on our Blog. Don’t hesitate to contact us if you need access to cash quickly and without too many formalities. We’re always there to help you out!

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