If you’re a Federal Student Loan Borrower, and you haven’t been making payments, be careful before filing your tax return.
One of the collection tools available for defaulted federal student loans is called a Federal Income Tax Return Intercept. Depending on the status of your federal student loan, you may end up losing your tax refund. Best to tread carefully.
If you’re not making payments becuase you have a deferment or forbearance, do yourself a favor and double check the status of that.
Deferments and forbearances come in 6 and 12-month time spans. If you don’t know when it ends, make a call to your student loan servicer and verify it is still active. If it is still active then you have nothing to worry about in terms of filing your taxes.
If, however, the deferment or forbearance ended, you may be in trouble depending on how long ago it ended. If you only missed a few payments, even as many as 6, you should have time to save your loan from going into default. Call your servicer and ask how. If you’ve missed 9 or more payments, your loan is likely in default.
If your loan is in default, you may not get your tax refund due to a Federal Income Tax Return Intercept.
Mechanics Of the Federal Income Tax Return Intercept
Here’s how it works. The U.S. Department of Education sends a note to the Treasury who, upon being told by the IRS to issue a refund check, instead forwards the funds to the U.S. Department of Education to be applied towards your defaulted federal student loan balance.
Getting Income Tax Refunds Back After Intercept
If you file a joint tax return and part of the money is owed to the non-borrowing spouse, he/she can file an IRS form to get their share of the refund back.
You, the borrower, will not get back any refund money taken to pay your defaulted federal student loan. You can avoid future intercepts by rehabilitating your federal student loan and remaining current on payments.
What To Do Instead
Check the status of your loan. If you’re safe, go ahead and file.
If you’re in default, use this time to take action. Get your loan out of default, get a payment plan you can afford, and then you can file your tax return. Can you fix your default before the April 15th deadline? It is possible, but you may find it less stressful to file an extension until October to research and act on the best method to fix your default. Do your homework now – it could cost you if you don’t.
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