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Can the Federal Government Seize Your Tax Refund to Offset Student Loan Debt?

69% of 2018 college graduates took out student loans to pay for school.  The average amount of debt for those graduates is $29,800.  As you may already know, millions of former college students are defaulting on the federal student loans.  To counter this issue, the U.S. government is taking this matter into their own hands.

The Art of Withholding

This is not the first time the Federal Government has seized the tax refund of student loan borrowers who are struggling to make payments.  In 2016, the government took a total of $2.3 billion from 1.2 million borrowers.  In 2018, $3.3 billion was taken from 1.2 million borrowers.

This practice is not limited to tax refunds.  The U.S. government has the power to take your earned income credit, child tax credit, and social security payments to offset outstanding federal loans.

It does not stop with your tax refund.  If you are married and file jointly, the federal government can seize your spouses refund to offset your federal debt.

You Can Dispute the Seizure of Your Refund

Many people greatly depend on their tax refund every year (even though this is not advised).  When they expect a refund check, they instead find a letter telling them their refund was “applied to a delinquent debt that you owe”.  In this situation, you can dispute the decision.  However, you have to be able to prove that you are at risk for eviction or foreclosure.

Many people are struggling because the current guideline does not mandate that the taxpayer be notified in advance.  The government must only send a letter.  It does not matter if you actually see the letter.

If You Are in Danger of Losing Your Tax Refund Due to Federal Debt

There a few things you can do to try to stop the seizure of your tax return to offset debt.  You can:

  • Communicate with your lender – They may be willing to take your loan out of default status if you can create and execute a payment plan which results in you getting current on the payment schedule.

  • Explore loan consolidation – Bundling your current student loans into one new loan will get you out of default status. Not everyone is eligible to do this and, eventually, the payment may be larger than before.

  • Pay the full outstanding balance – This may sound crazy, but some people are able to do this because they finally landed a new job or inherited a sum of money. If this is something you can do, you should do it.

Dealing with any wage garnishment or seizure can be scary especially when the entity doing it is the Federal Government.  If you have received a notice of seizure or you feel like you are in danger of this happening, you need help.  Elias Dsouza of Dsouza and Strachan Lawgroup Group has the skills and experience to get you back on track.  Contact Elias today for a free consultation.

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