Settling student debt, whether they be federal student loans, or private student loans, can be tricky. You may need to start looking at different options for student loan forgiveness or gain knowledge about your default student loan options.
While you are doing the work to settle your debts once and for all. Here is how to keep your tax refund and federal student loan debts separate.
Connection between student loans and tax returns
All the federal student loans and taxes come from the federal government. They also manage the tax refunds every year in case of over-payment. People who stop paying their student loans and fall into the default list put their tax refunds at risk.
US Department of Education and Department of Treasury have an information sharing agreement. This agreement enables the Department of Treasury to collect funds from over-payment tax return checks of those who have failed to pay off their student loan.
As a matter of federal regulations, the Department of Treasury is also authorize to settle any other pending or delay payments. The Department of Education also has the authority to request the Treasury Department to offset and collect any outstanding federal student loan debt.
The important part is to understand that the offset process applies to student loan defaulters, and doesn’t apply to those who are being paid on time or those who are merely past due. To be declared as a defaulter, you must be a minimum of 270 days late on your federal student loan payments.
Finding out if you’re going to lose your tax refund
As per the Federal law, the Department of Treasury is required to give advanced notice of the proposed offset. Upon receiving the notice, you have the option to review loan records and object to the offset. It gives you 20 days from the day you received the notice to request loan record copies, and you have 65 days to request for review of the loan file.
If you decide to file for a review, you will have to send a letter with your name, social security number, the loan information, a written objection to the debt, whether you are requesting a hearing in person or by telephone, and provide any documents which support your objection.
Filing joint taxes may lead to losing your refund
What will happen if you owe money on defaulted student loans but your spouse doesn’t owe any money on defaulted student loan?
The Federal tax refunds payable to joint filing couples are subject to offset. Although there is an option for you to receive the portion of the refund owed to your spouse. It can be done by following simple procedure by filing an injured spouse claim with the Internal Revenue Service.
Is it possible to get your tax refund back from the government?
The only possible way you might get your tax refund is by filing for bankruptcy. According to the bankruptcy laws, money can be recovered within 90 days from the day you have filed for bankruptcy. If you have filed for bankruptcy under Chapter 13, then you can bring the preference lawsuit to recover money even if you can’t exempt the refund.
The investment in the form of time or money may not worth the effort. In the case that your only loans are your student loans, the only benefit would be to get your refund sorted.
Private student loans are not the same as government student loans
The tax refund offset program applies only to federal student loans. In the case that you’re worried about your private student loans, then your concern shouldn’t include your refunds.
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Like any other creditor, the private loan company will have to take you to the court for settlement. If the final judgement would be against you, and then the court will order the bank to seize your bank account. Though the tax refund can be taken if it’s sitting in the bank account, the lender can’t simply ask the federal government to turn over your tax refund.
Consulting a tax accountant or tax attorney
If you’re still concerned about your student debts, or how your tax refund may be affected, you can also get in touch with a local tax accountant or tax attorney to discuss your options and possibilities.
Additionally, a tax accountant can help you determine if there are any untapped deductions you’re entitled to, and help you get the largest refund possible.
Consider loan consolidation
If your federal student loan is currently in good standing, but you’re worried that you might soon default, it’s best to look into loan consolidation as soon as possible. The lowered monthly repayments can help you avoid defaulting, and may buy you time to look into other options, or a career change that will help you pay back your loans
You work hard for your money and it’s important to make sure that you hang on to every dollar you’re entitled to. To avoid defaulting and work toward repaying your loans, it’s important to consider all your options for both repayment and student loan forgiveness. There are other federal programs that will forgive the balance of your loan after 10 years of service in certain fields, like public sector jobs, teaching at certain schools, and non-profit work. Always look into all your options before making a decision about your student loans.