Tax Refund Garnishment

Defaulting on your federal student loan can lead to serious consequences. One consequence is that the U.S. Department of Treasury can seize—or garnish—your federal and potentially your state tax refunds to repay your debt. This is allowed by the Treasury Offset Program (TOP). Some states, including Massachusetts, have an additional program that garnishes state payments directly.

What Is TOP?

TOP allows the government to garnish money for repayment of your federal student loan debt. If you are a Federal Family Education Loan Program (FFELP) borrower, your tax refund may be offset by the U.S. Department of Education (ED) on behalf of your guarantor. Different kinds of government funds can be garnished. These may include, but are not limited to:

  • Federal travel reimbursements.
  • Payments from other government agencies (such as Social Security).
  • Federal tax refunds.
  • State tax refunds.

Funds can be taken without your permission. However, you will receive information regarding the amount and date of your offset.

Will My Taxes Be Seized?

If you have defaulted on a federal student loan, up to 100% of your tax refunds can be seized.

Federal law requires your guarantor or ED to send you proper notice before an offset occurs. This notice will say that a claim has been filed against your defaulted loan to ED and will also provide information on:

  • Your defaulted loan.
  • Your rights as a student loan borrower.
  • How you can avoid tax offset.
  • How to request documentation about your defaulted loan.
  • How you can request a hearing to object your offset.

You are able to challenge your tax offset. However, you cannot challenge it simply because you did not receive a notice from your guarantor or ED.

You may be able to avoid having your tax refund seized if you set up a satisfactory repayment arrangement and begin making payments. Note that you can still be subject to offset even if your wages are currently being garnished.

You would enter into this arrangement with your guarantor or ED, depending on whether your loan is part of FFELP or the Direct Loan program. Contact your guarantor or ED if you have questions about this process or would like to know your options for recovering from default. If you don’t know whom to contact, you can find out who currently holds your loan by using the National Student Loan Data System (NSLDS). This is ED’s database for all federal student loans.

You can read more about offset from Federal Student Aid. If you have other questions regarding your student loans and taxes, check out the American Student Assistance® (ASA) tax incentives page. ASA® also has an archive of tax-related questions.

If you have been notified that your federal tax refund will be garnished and you have an ASA held loan, you can contact us at 800.343.2120 with questions or concerns.