Young Americans who have fallen behind on student loan payments risk their tax refund; the Department of Education can seize that money for repayment.
Many borrowers don’t realize that, and they could be very angry this tax season, according to CNYCentral. The Department of Education, legally, can withhold money from borrowers in default from other federal payments and even wages in addition to income tax refunds.
A recent report from the Federal Reserve Bank of New York noted that almost 25 percent of student loan borrowers were in default or were at risk of default. For students struggling to repay loans and expecting a tax refund to pay other bills, they could be surprised soon.
Referred to as “Treasury offset” withholding, the Department of the Treasury withholds payments at the Education Department’s request. When the loan no longer qualifies as in default, the withholding ends.
Students ignore payments at their peril. The federal government does not forgive so easily. Public opinion might steady the instances of withholding, however. Having the power to withhold tax returns doesn’t mean the Department of Education will request withholding for all borrowers. If the Department of Education requests withholding for all borrowers in default, it could trigger negative publicity.
For student debtors, however, it’s an important reminder that escaping student loans isn’t a possibility.
