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What to Do When a Tax Refund Is Seized for Student Loans

By U.S. News & World Report

It’s that time of year again — tax time. While you may not look forward to the actual filing of your taxes, many consumers do look forward to getting that refund check. In fact, most start planning what they will do with that refund long before tax season.

Whether you were planning on putting a down payment on a new vehicle, putting it in savings, catching up on those Christmas bills or paying off debt, finding out your federal or state tax refund has been seized can be a nasty surprise.

[Understand student loan defaults and tax refunds.]

Many federal student loan borrowers are caught off guard the first time their refund is taken. This will happen if the loan defaults — no payment for 270 days — and no payment arrangements are made. If you contact the loan holder and start rehabilitation or another type of payment plan and make those payments on time, chances are the process won’t be initiated. You can also consolidate the loan out of default.

The process for what is commonly called garnishment starts with initial certification for Treasury Department offset several months before tax time — usually in the fall. You will receive a notice that the loan holder is submitting your debt for tax offset and have the opportunity to appeal this action. This notice is generally sent to the address you used the last time you filed your taxes or to the address on file at the loan holder. Some reasons for appeal include:

— The debt is paid in full.

— The loan should not be in default.

— You may be eligible for discharge because a school closed or falsely certified the loan.

— The borrower is deceased or permanently disabled.

— The loan should have been refunded by the school.

— The loan is not yours due to identity theft.

— The loan was discharged in bankruptcy.

If you think you have a valid reason to avoid offset, you should submit your appeal within 65 days of the date of the notice. If you wish to review your loan file, you must make that request within 20 days of the notice and request an appeal within 15 days of that request.

All requests must be in writing to the loan holder, whose address will be included in the notice of offset. If you request an appeal within those time frames, your offset will generally be put on hold while you wait for a hearing. Requests made after that will not halt the offset process, but if you succeed in your appeal the offset amount will be returned to you.

If you file your taxes jointly, your spouse may also request to have his or her portion of the refund returned. This is called an injured spouse claim and is filed directly through the IRS.

[Find out how getting married could affect your student loan repayment.]

Once your account has been certified for Treasury offset, and there is no successful appeal, it will remain in this status until the default is resolved through rehabilitation, consolidation or by paying the loan in full. This certification does not limit the garnished amounts to tax refunds but can include other types of federal payments including: wages for federal employees, including military pay; Social Security benefits, other than Supplemental Security; some federal bond payments; and federal retirement benefits.

In some cases, especially when Social Security benefits are offset, the borrower can file a financial hardship appeal to the loan holder to receive a portion or all of the garnishment back. If Social Security is your only income, and losing a portion of it will drop you below a minimal standard of living, you should submit this appeal to the loan holder. You will likely be asked to submit proof of all income and expenses as well as other forms of support you may receive.

[Learn about common tax filing rules for student loan credits and deductions.]

If you take the trouble to go through the appeal process, the Student Loan Ranger encourages you to take the opportunity to resolve the student loan default while you are at it. Remember there is no statute of limitations on federal student loans, so unless and until you resolve the default, it will continue to haunt you until — well, forever.

Student loans that are not in default are eligible for lower payment options including the income-driven repayment plans, which set the payments based on your income, and have a forgiveness component after a certain number of years. If your income is very low, such as someone whose only income is Social Security, those payments could be zero dollars per month.

While appealing the offset and resolving the default may feel intimidating to some, the process is straightforward and fact-based. Doing so will also alleviate a lot of future headaches.

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What to Do When a Tax Refund Is Seized for Student Loans originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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