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What to know about your tax refund being garnished to pay student loans—and why you're off the hook this year

Here's why your tax refund can't be taken this year, at least until September 30, 2021.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

In a regular tax season, if you have federal student loans in default, your tax refund can be used to help make up for what you owe on your loan. This doesn't apply to private student loan borrowers, whose tax refunds cannot be garnished if their private loans are in default.

Your federal student loans go into default after 270 days of past-due payments.

Of course, this isn't a usual tax season. "Fortunately, for taxpayers with federal student loans, 2021 is not a typical year," says Steven Rossman, CPA and shareholder at Drucker and Scaccetti, a Philadelphia-based accounting firm focusing on taxation.

The March 2020 CARES Act put a pause on federal student loan payments and interest, and it's since been extended under President Biden through Sept. 30, 2021. This pause also prevents any collection activities, which includes taking your federal tax refund to pay your defaulted student loan, Rossman adds.

Taxpayers with defaulted federal student loan debt can rest easy knowing that their 2020 tax refund is safe at least until Sept. 30, 2021. But Rossman warns that all bets are off after that date.

Rossman's advice: Don't delay filing your 2020 taxes

Although the extension of federal student loan forbearance means borrowers with defaulted loans don't need to worry right now that their 2020 tax refund could be applied to their debt, this relief is currently promised only through September 2021.

For this reason, Rossman advises that those with federal student loans in default file their 2020 taxes (if they haven't already), so they can get their refund as soon as possible. Once you receive your tax refund, it is yours to keep and will not be taken away from you.

The IRS has extended the federal tax filing deadline to May 17, 2021, and a majority of states have also extended their deadlines. Those who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15, 2021 — but keep in mind that this is past the current Sept. 30, 2021, forbearance end date in place.

"We don't know if refunds received after the [Sept. 30, 2021] date can or will be garnished," Rossman tells Select. Once the federal Covid relief ends, and the IRS has the green light to start collection activities again, any tax refund you receive can be garnished and used for your unpaid federal student loans that are in default.

Better safe than sorry: It's crucial you file your 2020 taxes as soon as possible, ideally before the deadline. You can make the tax filing process quick and easy by using one of our top-rated tax software.

Select reviewed 12 tax filing programs and ranked the top five after evaluating them on a range of features like cost, user experience, expert tax assistance and Better Business Bureau rating. (Read more about our methodology below.)

When you do receive your tax refund, consider saving this windfall of cash, if you can afford to do so. With the average tax refund totaling $2,873, this is a sizeable amount that can go toward getting your federal student loans out of default when payments resume.

Learn more: How to get your federal student loans out of default

There are two main options when you want to get your federal student loan out of default: 1) loan rehabilitation, which takes several months to complete; or 2) loan consolidation, which only requires a quick application.

While both options offer benefits like eligibility for deferment, forbearance and loan forgiveness, you'll have fewer repayment plan choices if you choose loan rehabilitation. But if you go with loan rehabilitation, you can have the default record removed from your credit history. With loan consolidation, the record of the default stays in your credit history for seven years after the account is paid in full.

Learn more about federal student loan rehabilitation and consolidation at the U.S. Department of Education's student aid website.

Our methodology

To determine which tax software offers the best way to file your taxes online, Select analyzed 12 programs. We compared each program on a range of features, including:

  • Cost
  • User experience
  • Expert tax assistance
  • Accuracy and maximum refund guarantee
  • Better Business Bureau (BBB) rating
  • Customer reviews, when available

Cost was one of the most important factors. While many of these services offer free versions, many people have complicated finances that require them to pay to file their taxes. We evaluated the price per plan and weighed the features you receive, like the ability to maximize deductions and credits. The more bang for your buck, the higher a service ranked.

Whether you're new to filing taxes or a seasoned pro, user experience is crucial to filling out and submitting your return quickly and with little frustration. The services we chose had to be relatively user friendly.

The ability to speak with a tax expert or support representative was a big plus. Four out of five of the best tax software offered some form of support.

And if a service supported consumers with a generous accuracy and maximum refund guarantee, it was ranked higher.

We also considered the Better Business Bureau rating associated with the software. BBB ratings help determine whether a business is operating responsibly and if it helps to resolve customer complaints in a timely manner. Customer reviews were also taken into consideration.

After reviewing the above features, we sorted our recommendations by best for overall tax filing, runner-up, free tax software, most affordable and best accuracy guarantee.

The federal and state filing fees for the software programs mentioned above are subject to change without notice. Many programs don't charge you until you file, so there's a chance the fees can change from the time you start your return until you submit it.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.