Most Americans are consumed with so much student loan debt that it is too stressful and overwhelming to deal with. When we don’t want to deal with something the best thing to do is ignore it, right? WRONG! Defaulting on student loans can lead to wage garnishment and loss of tax refunds. The official IRS term is Treasury Offset. When a borrower is delinquent on payments to a government agency (federal student loans), the government agency sends the delinquent status to the Treasury Offset Program Delinquent Debtor Database. All federal and or state payments due to a delinquent borrower will be withheld until their name is removed from the Treasury Offset Program Delinquent Debtor Database.
Upon losing your refund check you probably agreed to a payment plan option, but that doesn’t mean that you will be getting your 2018 refund check. Follow these 3 steps to ensure you’ll receive your 2018 tax refund:
1. Get organized
Go to the National Student Loan Data System to view all your federal student loans. Next, you will need to create a comprehensive loan document that lists: all your student loan lenders, origination date of the loan, when repayment was required to begin, principal, interest, and fees incurred and lastly create a default column (to note how long you’ve been in default). Your refund check and/or wages could be garnished due to several lenders; so it is important to have an all-inclusive loan document. This is important for the next step.
2. Get your student loan out of default: Rehabilitation
You will need to set up a rehabilitation payment program with all student loan lenders in which you have defaulted. Rehabilitation payments are determined according to your income and can be as low as $5 a month. After nine consecutive on-time payments your loan will be removed from default status. If you make one late payment the rehab period starts all over again. If you start your first rehab payment in July 2018 you may still be able to receive your 2018 tax refund.
If you have several student loans that need to be rehabilitated don’t stress and consolidate your defaulted loans. Consolidating default loans before rehabilitation will result in a permanent default loan status on your credit report, even after paying the consolidated loan in full. You also will have to take out a much larger consolidation loan amount to cover various default fees incurred.
3. Confirm that your loan(s) is out of default before filing your tax return
Contact the Treasury Offset Program at 800-304-3107 to find out if you have been removed from the Treasury Offset Program Delinquent Debtor Database. You may have to also inquire in writing as to whether you have been removed from the database. Once you have received in writing from Treasury that you are no longer in the database, file your tax return. As mentioned above, all federal and or state payments due to you will be held until your name is removed from the Treasury Offset Program Delinquent Debtor Database. Keep in mind you must file by April 15th unless you are requesting a filing an extension