We’ve received dozens of questions the past few weeks regarding tax refund garnishment. This is a topic we’ve covered in the past, but considering the volume of student loan borrowers reaching out to us for help this year, let’s take another look.
The following questions are real but may have been edited for grammar or clarity. If you have a question the Student Loan Ranger can help with, please reach out to us at studentloanranger@usnews.com.
[Learn what to do when a tax refund is seized for student loans.]
Q: I am trying to navigate how I can get started to appeal my tax offset that was taken by the Department of Education. I didn’t receive a notice that they were doing this, and I am not sure who to call?
A: Typically, the certification for tax offset happens in the late summer or fall the year prior, so that’s when you should have received the letter notifying you of the threat of offset and how to possibly appeal. The loan holder also usually tries to reach you by phone to try and help you resolve the default.
Once the loan is certified for offset, it stays in that status until the default is resolved or paid in full. In other words, they only notify you that first year of certification.
If you haven’t been receiving mail or phone calls from the loan holder, contact the servicer to resolve the default and ensure your correct address and phone number are on file. If you aren’t sure who that is, you can find out on the National Student Loan Data System website.
[Follow a timeline of federal student loan delinquency and default consequences.]
Unfortunately, borrowers with defaulted loans commonly avoid the mail and phone calls because they’re overwhelmed or intimidated by the debt. Always open all mail and stay in contact with your loan holder to help avoid unpleasant surprises such as offset.
You can try filing a financial hardship appeal in writing to the loan holder. Generally, the loan holder may return a portion of the tax offset amount in situations of extreme hardship. When you file your appeal, be polite and succinct and include proof of your financial situation demonstrate why you feel you qualify for returned funds.
If you filed your taxes jointly, your spouse can apply for the return of his or her portion by filing an injured spouse claim directly through the IRS.
To prevent future offsets, I strongly suggest you resolve the default now by either rehabilitating or consolidating the loan out of default. This will also stop the refund garnishment once the loan is again in good standing and will also prevent wage garnishment. Be sure to read about your options.
[Make sure to understand the consequences of student loan default.]
Q: I was a U.S. Marine for four years. I received the Post-9/11 GI Bill for free college tuition. I was on year three at ITT Tech. ITT Tech was shut down by the federal government. All of my classes were dropped. ITT sent a notice to the Veteran Administration stating that all of my classes were dropped. The VA then collected my entire tax return of $6,000 to repay this amount. When using the Post-9/11 GI Bill, if you drop a class you have to pay that amount back. That makes sense, but in this case I didn’t drop any classes, the school closed suddenly.
While those ITT Tech students with loans who were attending could get those loans discharged, I did not take out any loans to attend school due to the Post- 9/11 GI Bill covering tuition. I was counting on this tax return and had no idea they would be taking it. I am not a lawyer and in calling the U.S. Treasury, Veteran Affairs student loan number and ITT Tech, all have placed blame on each other and direct me to call the opposite agency each time. I don’t know what to do and need help.
A: In short, you are a victim of rules that did not contemplate a situation such as the Corinthian College or ITT Tech sudden closure when they were written. It makes some sense that the Department of Veterans Affairs would collect the GI Bill funds back if you had withdrawn from these classes, but it certainly does not if the school suddenly closed, preventing you from fulfilling those classes.
If anyone should pay the funds back, it should be ITT; but it has filed for bankruptcy, so that may not be an option. Unfortunately, nothing in current rules allows GI Bill benefits to be restored in the case of school closure.
This is a situation where we need a rules fix to correct this oversight. In the meantime, the Department of Veterans Affairs should at least refrain from trying to collect these funds from affected students, like yourself. We’ve reached out to several legal and veteran advocacy organizations to see if they have any ideas of solutions for you and advi s e you to contact your congressional representative for help.
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Navigate Tax Refund Seizures for Student Loan Repayment originally appeared on usnews.com
