Student Loan Tax Offset Hardship: Retrieving or Protecting Your Tax Refund From Garnishment

Kelly Hernandez
A pink piggy bank wearing a graduation mortar board, sitting atop a 3-ring binder, near a pile of receipts and a calculator
Reading Time: 5 minutes

A tax offset occurs when the federal government garnishes your tax refund. Your tax refund is targeted if you’ve defaulted on a loan with the government. A tax offset is most common when you’ve defaulted on your federal student loans.

When you’re in financial turmoil and expecting to receive a tax refund, learning that the money has been garnished can be devastating. However, there may be a way to prevent the government from garnishing your tax refund or to get it back if it’s already been taken.

You can apply to have your tax offset refunded if you feel this action has caused you “financial hardship.” The process to refund a tax offset can be long and difficult, since you’ll have to prove your hardship and reach out to the correct agency to begin the process. However, if you qualify for a tax offset refund and get your money back, it can be worth completing this grueling process.

Defaulted Loan to Tax Refund Offset

If you stopped paying your monthly payments for federal student loans, you may become delinquent. If you continue not making loan payments, the loans can go into default status. Once your loans have defaulted, the federal government can begin to take action against you to get its money back, including garnishing your tax return.

The Department of Education works with the Internal Revenue Service (IRS) to find you in the system and learn if a tax refund is owed to you. If you do qualify for a tax refund, the money owed to you is redirected to the Department of Education and applied to your student loan debt.

Qualifying for a Student Loan Tax Offset Hardship

The Department of Education and IRS have the right to a tax offset whether you’ve been notified or not. You may receive notification that your tax refund has been garnished but in some cases, the department may have the wrong address for you. If your student loans are in default and you suspect a tax offset may be coming, it’s important to learn your options and take action right away.
If you think you qualify for a student loan tax offset hardship refund, you can begin the process of requesting your refund, even if the Department of Education hasn’t garnished your tax refund yet.

To qualify for this refund or to prevent your tax refund from being taken away, you’ll have to prove that the garnishment of your tax refund has or will place you in extreme financial hardship. You may qualify for a refund if:

  • You’ve repaid the loans.
  • You’re totally and permanently disabled.
  • You have an open bankruptcy case or your student loans were discharged in your bankruptcy case.
  • The loans aren’t enforceable.
  • You’ve agreed to a repayment schedule with the Department of Education and have made your payments on time.
  • The Social Security number attached to the loans is incorrect and another person’s name is listed.

Your living expenses, medical bills, or income statements can’t be used to prove extreme financial hardship.

Applying for a Student Loan Tax Offset Hardship

There is no time limit to file for a tax refund offset reversal. Since the process is long and arduous, however, you should file your request as soon as possible. To apply for a student loan tax offset hardship, you’ll need to:

Identify your financial hardship: Review your situation and pinpoint how you’ll plead your case for extreme financial hardship.
Gather documentation: When you know how you’ll plead your case, you’ll need to gather supporting documentation of your hardship, such as bankruptcy paperwork, foreclosure notices, or eviction notices.
Prepare documentation: When you send in documents, you won’t be getting them back, so you’ll need to make copies of the official documents you plan to send in. If these are formal documents, make sure they’re signed or notarized by a court representative, landlord, or another official representative.
Send in your request: If you receive a notice of your tax offset, it will come with a student loan tax offset hardship request form. Complete this form and mail it to the agency with your supporting documentation.

If you didn’t receive a notice from the agency or you can’t find the agency’s contact information, you can contact the Department of Education or the Treasury Offset Program at 800-304-3107.

Even if you provided adequate paperwork to prove your financial hardship, a tax offset refund is never guaranteed. If your request is approved, there isn’t a specific timeline the agency follows to give your money back, so don’t count on receiving this refund soon.

How to Avoid a Tax Refund Offset

If you find yourself in financial trouble and unable to pay your student loans, there are a few ways to avoid a tax offset.

Make a Payment Agreement

If you’re delinquent or in default on your student loan payments but you haven’t experienced a tax offset yet, you can request a payment agreement with the Department of Education. If you received a notice of tax offset, information on how to request a payment agreement is provided.

You have 20 days to file a request to obtain a payment agreement after you receive your notice. The amount you’re required to pay and the terms of the payment agreement are made with the Department of Education. You’re required to make your first payment within 65 days of receiving the notice.

Deferment of Loans

If you know you won’t be able to make the minimum payments on your student loans on time, attempt to defer the loans before going into default. This allows you to postpone your payments for up to three years so you can become financially stable before you must make payments again. To request a deferment, contact your loan provider. Contact information is on your student loan documents or monthly statements.

Consolidate Loans

You may qualify to consolidate your loans into one loan with a lower interest rate. If you plan to consolidate your loans, you must begin the process before you receive notification of the tax offset.

Dealing With a Tax Offset: Last Resort Options

If you’ve already experienced a tax offset, you may not qualify for a refund of this offset. Even if you feel you do qualify for an extreme financial hardship, the process of filing for a student loan tax offset refund can be long and difficult. You may need to consider a last resort option.

Let It Go

While it can be hard to simply let your tax offset go without fighting to get it back, there are some advantages to this unfortunate garnishment of your tax refund. The Treasury Department stipulates that a tax offset must be used to pay the principal and interest of a federal student loan, not the loan collection fees. Therefore, your tax offset is used to pay the balance of your loan, decreasing your debt.


If you need to stop the tax offset but have no other options, you can file for bankruptcy before the offset occurs. Your bankruptcy filing freezes all negative financial actions against you, including a tax offset. However, this is a drastic action to take and bankruptcy can affect your credit history for years.

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