Missing Tax Refund

Dear American Student Assistance:

I filed my taxes online a few weeks ago and was expecting a big refund that I was going to use to pay off some high interest credit cards. I just received a letter in the mail that says that my tax refund has been “garnished” and sent to my student loan company instead. I never authorized this when I filed my taxes and am having trouble getting through to the company I used to file my return. What can I do?


Dear Louis:

Based on the information you provided, it sounds like you have federal student loans and that they have defaulted. Unfortunately, if you default on a federal student loan, one of the “tools” that are available to the agency handling the loan is the ability to garnish, or seize, any federal or state income tax refunds that may be due to you. This can occur whether you file your taxes online, send them in the mail, or use a tax preparation service. It’s very unlikely that your loan company will return your refund if you do owe on a defaulted loan.

What you may want to do at this point is contact them to make future payment arrangements so that they may decide not to take your refund next year as well. Some companies will continue to take your tax refunds annually until the defaulted loan is rehabilitated, consolidated, or paid in full, but others may be willing to stop this process if the borrower is sticking to an agreed monthly payment amount.

If nothing else, making such arrangements may stop your loan company from using some other “tools” they have available in federal student loan collection, including wage garnishment and court judgments. It certainly doesn’t hurt to have the conversation!

American Student Assistance

Tax Incentives

If you are in school or repaying student loans, there are certain tax advantages you may be eligible for. See what tax deductions might be available to you.