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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

Your tax return is safe from student loan garnishment this year. Here's what you need to know.

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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. However, this doesn't apply to private student loan borrowers, whose tax refunds cannot be garnished if their private loans are in default.

For federal student loan borrowers, your loans go into default after 270 days of past-due payments.

But under the March 2020 CARES Act, those payments have been on pause on federal student loan payments and interest, and extended until May 1, 2022. However, it's expected this will be the last extension of student loan forbearance, and payments will resume.

Taxpayers with defaulted federal student loan debt can rest easy knowing that their 2021 tax refund is safe at least until May 1, 2022. But after that, federal student loan holders will be paying their bill once more.

Select details what you need to know about your tax filing this year, and how it affects your student loans.

Don't delay filing your taxes because of student loans

Although the extension of federal student loan forbearance means borrowers with defaulted loans don't need to worry right now that their 2021 tax refund could be applied to their debt, this relief is currently promised only through May 2022.

For this reason, Rossman advises that those with federal student loans in default file their 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 federal tax filing deadline is Apr. 18, 2022, and some states have also extended their deadlines. Those who need additional time to file beyond the Apr. 18 deadline can request a filing extension until Oct. 15, 2022 — but keep in mind that this is past the current May 1, 2022, forbearance end date in place.

Once the federal student loan forbearance 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 in default.

Better safe than sorry: It's crucial you file your 2021 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 platforms.

And when you receive your tax refund, consider saving this windfall of cash, if you can afford to do so.

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.

Bottom line

Your tax return will be safe from garnishment this year, as long as you file before the Apr. 18 deadline. However, it's likely that student loan repayment will likely resume just two weeks later.

If you're falling behind on your student loans, you may consider seeking resources from the U.S. Department of Education, refinancing your student loans to a private lender or worst case — explore bankruptcy options.

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.
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