Can a Person's Income Tax Refund Be Withheld if a Dependent Has Defaulted on Student Loans?

You can't be liable for a loan unless your name is on it.

You can't be liable for a loan unless your name is on it.

Borrowers are responsible for their own debt, and student loans are no exception. If your dependent has defaulted on her student loan, your tax refund cannot be withheld. However, if you co-signed for a federally guaranteed student loan or took out a Parent PLUS loan, your tax refund might be withheld depending upon the terms of the loan.

Dependent Loan Liability

Your dependent is liable for the loans she has taken out, even if you help her file the paperwork or otherwise aid in the process. You can't be held responsible for a dependent's loans unless your name is on the actual note. Before withholding a tax refund or taking other adverse action, a student loan company will notify you of the action it intends to take.

Parent Co-Signer

If you co-sign for a student loan with a dependent, you might be liable for the loan. However, for your tax refund to be withheld, the loan must be a federally guaranteed student loan, not a private student loan from a bank.

Parent PLUS

A Parent PLUS loan is a federally backed student loan that parents can take out to help fund the costs of a child's school tuition. If a Parent PLUS loan is defaulted, it is the parent who is the defaulter, not the dependent, and you can be held liable for this default. It might even cause your tax refund to be withheld.

Other Default Implications

Defaulting on a student loan can cause serious financial problems. If you or your dependent default on a loan, your wages may be garnished and you could be sued. You will also not be eligible for future student loans or grants until the default is cured. Defaulting on a student loan can also seriously affect your credit score. Paying a student loan in a timely fashion can also qualify you for up to $2,500 each year in interest deductions from your tax returns.


About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.

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