Today, Optima Tax Relief’s Chief Tax Officer and Lead Tax Attorney, Phil, discusses what’s happening with student loan collections and what it means if you’ve defaulted on yours.
Yes, Student Loan Collections Are Back
After years of pauses and extensions, federal student loan collections have officially resumed. If you’ve defaulted on your student loans, this could impact your paycheck and even your tax refund. With over 43 million Americans carrying student loan debt, this shift affects a huge portion of the population.
What You Should’ve Received
Borrowers should have received an official notice from Federal Student Aid (FSA), an office within the U.S. Department of Education, outlining the return of collection efforts. If you didn’t see the email or letter, it’s important to check your spam folder or log into your loan servicer’s website for updates.
How the Government Can Collect
Once a loan is in default, the federal government has powerful tools to collect, without a court order. Through the Treasury Offset Program, your tax refund may be seized and applied toward your outstanding student loan balance. Additionally, the government can garnish up to 15% of your disposable income straight from your paycheck.
What You Should Do Now
If you’ve defaulted or are struggling to make student loan payments, don’t wait. Contact your loan servicer and ask about available repayment options. Many borrowers qualify for income-driven repayment plans, rehabilitation programs, or other solutions that can help you avoid wage garnishment or refund offsets.
Phil’s Tip
If you also are dealing with unpaid taxes, Student Loans are one of the allowed expenses IRS will let you take when considering repayment or financial hardship options.
If you need tax help, contact us today for a Free Consultation