Will Overdue Student Loans Garnish my 2021 IRS Tax Refund in 2022? Delinquent Student Loans Refund Offset Exemption Update

In several recent tax related articles and videos, folks have been asking questions around their delinquent student debt and wondering, as was the case last year, if it is exempt from being offset by the IRS against their tax refund.

While over-due student debt is normally subject to federal tax offsets (like child support payments are), under the BFS’ Treasury Offset Program; repayments and collections (including via refund offsets) on these student loan debts is paused until May 1st, 2022 under various stimulus bills (CARES and ARPA) that extend into the 2021-2022 tax season.

This was done as part of broad pandemic relief measures to reduce financial hardships on many students adversely hit by the COVID crisis.

The Education department went further than these mandated legislations and announced that it would suspend their participation in the Treasury BFS offset program for a further 6 months, which would mean IRS refund payments would not be offset for overdue student loan payments until November 1st, 2022.

This means that the entire 2021-2022 regular and extended tax season are covered by this offset exemption for student loan debt.

Note that only federally backed student loans are covered by this exemption, private loans are not. But private loans cannot participate in the IRS’ offset program.

Refunds Won’t be Reduced Due to Overdue Student Debt

2021 refunds are legally exempt from offset reductions due to delinquent student loan debt. This covers nearly 9 million student borrowers at least 270 days behind on payments.

This is why tax filers with loans in default should consider filing their taxes early in 2022 to improve their chances that any tax refunds they are entitled to will be paid before the payment and collection pause ends.

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Can I challenge an offset?

You can request a hearing to challenge the tax offset if for example you have paid off the debt. But you need to do this via the collecting agency, the Department of Education in this case, and not via the the IRS. You can see more details on the process here.

What happens when the payment and offset exemption is lifted

Student loans repayments will resume after May 1st, with the offset exemption lifting after November 1st. Normal rules will apply after this date and if you default on a federal student loan, your tax refunds can legally be garnished by the IRS under the offset program. So ensure you pay off your overdue student debt with these tips.

The DOE has also said that borrowers with delinquent loans (over 270 days) will be given the opportunity to enter a payment plan — which would prevent tax refund garnishment — before collection activities restart after November 2021.

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