When you default on your student loan, you'll want to contact the lender as soon as possible make new payment arrangements. Even if you do this, it is important to know that your federal tax refund can still be subject to offset because of bureaucratic error. It could happen if your new payment arrangements took place near the date scheduled for the offset request or if the state or agency tried to collect your debt from more than one source. If so, you will get the money back through the state or federal agency that asked for the offset.
TL;DR (Too Long; Didn't Read)
Your tax refund may be offset even if you made payment arrangements to take care of your defaulted student loan.
The Treasury Offset Program
The federal offset program is called the Treasury Offset Program, or TOP. It is administered by the Bureau of Financial Services, part of the Treasury Department that is separate from the Internal Revenue Service. The TOP compares federal and state tax returns with certain kinds of delinquent debts, including student loans.
The funds subject to offset include both your refund and, if you claimed it, funds from the earned income tax credit. The TOP doesn't run comparisons automatically; a state or federal agency has to request it. Private loans don't participate in TOPS.
Two Offset Notices
Both the loan agency and the TOP are required to send you notices if an offset is in the works. The agency's notice has to be sent 60 days before the request goes through, certified with return receipt requested. If you rearranged your student loan agreement near the end of the 60 days, the request may go through regardless. Your offset may be twofold; the agency can get offsets from both state and federal returns, so refunds may overlap.
Is Your Refund Late or Offset?
You may find out about the incorrect offset only when you receive your federal notice. If your refund is late and you're worried about an offset, you can call the TOP call center at (800) 304-3107. The TOP can tell you if there really was an offset and which agency requested it. The federal government has a hands-off policy on offset decisions, so it can't help you get the offset reversed, but TOPs will tell you how to contact the agency.
Where to Go Next
If you recently made new arrangements for the loan, you already know where to go: back to the agency, loan servicer or school that handled your arrangements. If you had a direct loan from the department of education, you'll contact the Education Credit Management Corp. online or by calling ECMC post-default services at (855) 810-4922. You can get further information about your student loan status by logging into the National Student Loan Data System.
Sarah Brumley has written extensively on business and health-industry topics since 1995. Her work has appeared in publications ranging from Funk & Wagnall's yearbooks to "Medical Economics," a magazine for physicians. She holds a master's degree in finance from New York University.