Qualifying For Student Loan Tax Offset Hardship Refund

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Student loan tax offset (also called Treasury offset) is a tool the government uses to recoup funds they are owed from taxpayers. When it comes to student loans specifically, Treasury offset can be used to seize income tax refunds and certain government benefits. The collected funds are then allocated to reduce or pay off unpaid debt like a defaulted federal student loan.

While the government has not used Treasury offset for defaulted student loans for several years due to the COVID-19 pandemic, collection activity resumed for federal student loans on May 5, 2025. This means borrowers with loans in default are once again dealing with student loan tax offset and other consequences that result from unpaid loans.

If you are experiencing significant financial hardship, however, it may be possible to get a student loan tax offset hardship refund after the fact.

Eligibility for student loan offset hardship refund

To qualify for a student loan tax offset hardship refund, you’ll need to be experiencing a significant financial hardship. Generally speaking, this means that the student loan offset must be preventing you from meeting your basic needs and covering reasonable living expenses.

You may also be eligible for a student loan offset hardship refund if any of the following apply:

• You’re currently homeless.
• You’re permanently disabled.
• You’ve filed for bankruptcy and the loan was discharged.
• You’ve finished your unemployment benefits.

If you are experiencing hardship deemed severe enough to qualify, it’s possible you could get a refund for amounts withheld through Treasury offset.

How student loan offset works

Remember that student loan offset takes place when a payment from the U.S. Department of Treasury or other funds are seized to repay debts in default. The seized payments could include a tax refund you were otherwise due, Social Security payments you were set to receive, money seized through wage garnishment and more.

If any of these payments were taken from you, you’ll receive a letter of explanation from the Bureau of the Fiscal Service. The letter may explain that your full payment was seized to cover defaulted student loans or that only a partial payment was withheld from you. For partial payments, the remaining funds you were due will be processed as normal.

Note that this not only affects you as the original borrower but also your spouse if you file taxes jointly. This means that one spouses’ unpaid student loans can result in Treasury offset for either spouse.

How to request a student loan tax offset hardship refund

If you believe you may be due a hardship refund, there’s a series of steps required to apply for the refund. They include:

1. Confirm your student loan tax offset status: You can’t apply for a student loan tax offset hardship refund until you’ve confirmed that you’ve been impacted by this action. To confirm whether an offset is going to occur or is taking place, contact the Treasury Offset Program (TOP) call center at 800-304-3107.
2. Collect evidence of hardship: Your evidence might include proof of a disability, an eviction notice from a landlord, foreclosure notice for a mortgage, significant medical bills or the end of unemployment payments.
3. Submit tax offset refund request: Complete and submit an application for a tax offset refund to your loan servicer. If your loans are held by Education Credit Management Corp, for example, you can access their tax offset refund request form. You will likely be required to provide the supporting documentation you’ve gathered regarding your hardship.
4. Wait for a reply: After submitting your application and supporting documents, it can take up to 30 days to receive a decision from your loan servicer.

If your request is approved, you can receive a refund for all or part of the funds that were seized through Treasury offset. If your request is denied, you need to get back on track with student loan repayment to prevent further negative consequences of default.

5 Ways to stop student loan tax offset

Since notification for student loan tax offset is sent to you approximately 65 days before it starts, it makes sense to take steps to prevent it if you can:

• Enter an eligible repayment plan
  

  The U.S. Department of Education says you can avoid Treasury offset if you enter an eligible repayment plan and make your first monthly payment within 65 days of the date the treasury offset notice was sent. Be aware that your loan will still be listed in default with this strategy.

• Enter into a rehabilitation agreement
  

  You can also enter into a loan rehabilitation agreement, which can help move your loans out of default if you make nine on-time monthly payments. Again, the first monthly payment needs to be made within 65 days of the notice of offset.

• Consolidate your loans
  

  You can also use a Direct Consolidation Loan to pay off existing federal student loans and avoid offset. For this strategy to work, you must submit a signed Direct Consolidation Loan application within 65 days of the notice of offset.

• Pay the debt in full
  

  You can also avoid offset by paying off remaining debt in full within 65 days of the notice to offset being sent, including applicable interest and fees.

• Object to the debt
  

  You can also object to your debt by filling out and submitting the Request for Review Form that is sent with the notice of intent to offset. You can also submit a written statement objecting to the debt in its place. Either way, the objection must be filed within 65 days of the notice to offset being sent.

  Documentation can be sent to the following address: U.S. Department of Education, Default Resolution Group, P.O. Box 5227, Greenville, TX 75403-5227

  You may also need to submit a request for documents about your debt, in which case you should do so within 20 days of receiving the notice to offset if possible. Doing so will give you 15 days after the date the documents are received to object to the debt and request a review.

How to prevent a Treasury offset in the future

The best way to avoid a tax offset is to make your required student loan payments on time. However, there are some other options to consider that could make your student loan repayment easier:

• Refinancing: Refinancing can be a useful way to consolidate multiple student loans into one loan to gain a lower interest rate and better terms. Your credit score will impact your interest and approval rates, so check the lender requirements before applying.
• Deferment: Student loan deferment allows you to temporarily stall your payments. Interest does not accrue on subsidized loans. Federal student loans have specific deferment programs.
• Forbearance: Forbearance will let you stall your payments, although interest will accrue during the forbearance period. If you do not get approved for a deferment, a forbearance may be worth considering.
• Income-driven repayment plan: If you do not qualify for a deferment or a forbearance, a federal income-driven repayment plan may be your next-best option. These plans often let you make lower monthly payments since amounts owed are based on your income and family size. You can find information and applications for these programs at studentaid.gov.
• Enroll in autopay: If you’re not good at keeping track of your payments, consider setting up your loans for automatic payments. This can ensure at least the minimum amount is paid from your bank account each month, and you could even qualify for an autopay rate discount.
• Communicate with your loan servicer: If you struggle with your loan payments at any time, make sure to communicate with your student loan company. They can suggest moves that can help you stay on track, such as switching repayment plans or entering a loan rehabilitation agreement if you fall behind.

Bottom line

If you have difficulty repaying your student loans, you may be faced with a tax offset, but it’s possible to reclaim the funds taken from your tax return if you’re experiencing extreme financial hardship.

For assistance with your student loan offset hardship refund request, you can contact a student loan attorney or financial planner to help you get on track financially. Even if current federal student loan interest rates are better than what your federal loans are, refinancing will cause you to lose all protections.