Can student loans benefit from my tax refund?


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During a normal tax season, if you have federal student loans in arrears, your tax refund can be used to offset what you owe on your loan. This does not apply to private student loan borrowers, whose tax refunds cannot be garnished if their private loans are in arrears.

Your federal student loans are past due 270 days overdue payments.

Of course, this is not a typical tax season. “Fortunately, for taxpayers with federal student loans, 2021 is not a typical year,” says Steven rossman, CPA and shareholder of Drucker and Scaccetti, a Philadelphia-based accounting firm specializing in taxation.

The CARES law of March 2020 put a pause on payments and interest on federal student loans, and it’s been since extended under President Biden until September 30, 2021. The hiatus also prevents any collection activity, which includes repaying your federal tax to pay off your delinquent student loan, Rossman adds.

Taxpayers with past due federal student debt can rest easy knowing that their 2020 tax refund is safe at least until September 30, 2021. But Rossman warns all bets are void after that date.

Rossman’s tip: don’t delay filing your 2020 taxes

While the extension of federal student loan forbearance means borrowers with past due loans need not worry at this time that their 2020 tax refund may be applied to their debt, this relief is currently only promised until September 2021.

For this reason, Rossman advises those with federal student loans in default to file their 2020 taxes (if they haven’t already), so they can get their repayment as soon as possible. Once you receive your tax refund, it is yours and will not be taken away from you.

The IRS has extended the federal tax filing deadline to May 17, 2021, and a majority of states have also extended their deadlines. Those who need more time to file beyond the May 17 deadline can request a filing extension until October 15, 2021 – but keep in mind that the current abstention end date of September 30, 2021 has passed.

“We do not know if the refunds received after the [Sept. 30, 2021] the date can or will be garnished, ”said Rossman To select. Once federal Covid relief ends and the IRS is given the green light to resume collection activities, any tax refunds you receive can be seized and used for your unpaid federal student loans that are in default.

Better safe than sorry: It’s crucial that you file your 2020 taxes as early as possible, ideally before the deadline. You can make the tax filing process quick and easy by using any of the our best-in-class tax software.

Select reviewed 12 tax filing programs and ranked the top five after rating them on a range of features such as cost, user experience, expert tax assistance, and Better Business Bureau rating. (Learn more about our methodology below.)

When you receive your tax refund, remember to keep this manna of money, if you can afford it. With the average tax refund totaling $ 2,873, this is a significant amount that can be used to get your federal student loans out of default when payments resume.

Learn more: How to get your federal student loans out of default

There are two main options when you want to get your federal student loan out of default: 1) loan rehabilitation, which takes several months; or 2) loan consolidation, which only requires a quick application.

While both options offer benefits such as loan deferral, forbearance, and cancellation eligibility, you will have less choice of repayment plan if you choose loan rehabilitation. But if you go for loan rehabilitation, you can remove the default record from your credit history. With loan consolidation, the record of the default remains in your credit history for seven years after full payment of the account.

Learn more about Federal Student Loan Rehabilitation and Consolidation at US Department of Education Student Aid Site.

Our methodology

To determine which tax software provides the best way to file your taxes online, To select analyzed 12 programs. We compared each program on a range of features, including:

  • Cost
  • User experience
  • Expert tax assistance
  • Maximum precision and money back guarantee
  • Better Business Bureau (BBB) ​​Rating
  • Customer reviews, when available

The cost was one of the most important factors. While many of these services offer free versions, many people have complicated finances that require them to pay to file their taxes. We’ve priced per plan and weighed the features you receive, like the ability to maximize deductions and credits. The more bang for your buck, the higher a service is rated.

Whether you are new to tax filing or a seasoned professional, user experience is crucial to completing and submitting your return quickly and with little frustration. The services we chose had to be relatively user-friendly.

The ability to speak with a tax professional or support representative was a big plus. Four of the top five tax software offered some form of support.

And if a service supported consumers with generous precision and a maximum money-back guarantee, it ranked higher.

We also took into account the Better Business Bureau rating associated with the software. BBB ratings help determine whether a business is operating responsibly and whether it helps resolve customer complaints in a timely manner. Customer reviews have also been taken into account.

After reviewing the features above, we’ve sorted our recommendations by Best for Overall Tax Return, Second Free Tax Software, Most Affordable, and Best Guaranteed Accuracy.

Federal and state filing fees for the above mentioned software are subject to change without notice. Many programs don’t charge you until you file, so the fees may change from the time you start your return until you submit it.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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