Tax Offsets and Student Loans

Student loans are difficult to recover from when the person is drowning in debt while still searching for a job to repay the amount, and tax offsets may cause even more problems by taking the refund which may provide crucial income. Understanding what these are and how they work together is important for a graduate or former student.

Student loans often cause financial difficulty after the student graduates from college. However, when the loans enter the default stage, the individual may face offsets for his or taxable income. This could then lead to the tax return transferring to the agency or company that needs the funds to pay for debts the student accrued while still at school. In many circumstances, the former student may lose his or her tax return multiple years. The income that he or she may acquire during the tax season may only pay a small portion of the entirety of the loans.

The Department of Education

When a person has federal student loans already in default, he or she should contact the Department of Education to determine who to contact for repayment. By setting up a payment plan, the former student may avoid the tax offsets and lack of tax returns for the years the loans are in the default status. The Department of Education will refer the details and account information to the Department of Treasure for possible collections of the debts in federal and state taxed income. When the person is part of a household that may include more than himself or herself, it is important to either file individually or contact the department to free up the income of the other party.

Married Tax Filing

There are situations where one spouse owes money to the federal government for student loans and the other spouse is free and clear from any debt. The IRS will still subject the couple to a tax offset if they both file jointly. However, there are situations where the spouses may file separately or the one without any debt may contact so the funds for an income tax refund are available or returned to the person. It is important to communicate this to the correct agency or department. There are forms that govern these circumstances, and the spouse may ensure he or she receives the monies even when a tax offset occurs.

The Collection

Generally, the person facing a tax offset because of student loan debt will know that he or she will lose a federal or state income tax return. The agency or department will send some form of communication to the individual about the necessary collection or payment. The offset details are also sent to the individual, and he or she will receive nothing even when filing with a tax agency that may cost him or her for filing the tax forms. If the person contacts the Department of Education or the IRS, he or she may still save any refund if he or she faces financial hardship or to make a payment plan with the agency that needs the tax refund to pay the debt.

Prevention of the Tax Offset

It is generally either a delinquent debt or a default student loan that leads to the tax refund offset. It is more important to get the loans out of default, and there are some options available to do so for the individual. The person may make use of consolidation programs or the Direct Loan program to place all the debts in one place and pay off through time. This will remove the default status and put the loans in a good standing. A payment plan that provides a better opportunity is available through the program in usual circumstances. The payment amount frequently takes into account the family size and income the person earns. And filing may take up to three months.

Other options are often available if the person contacts the agency with the debt. If the lender is able to negotiate a reasonable repayment plan, it is possible to pay directly to the agency and place the former student back in good standing. This generally removes any possible tax offsets.

Legal Support for Former Students with Tax Offsets

A person with student loan debt may need to contact a tax lawyer to determine the best possible solution to the problem of tax offsets when the income tax return is necessary. The lawyer to will hard to find the best answer for the client.