June 30, 2022 12:19 am

Tax Refund Offsets Outstanding Student Loan Debt

Between 1981 and 2002, an individual took out a series of federal student loans to finance his education. As of December 5, 2018, they were in default in an amount exceeding $170,000. He was informed by the Department of Education that it intended to refer his student loan debt to the Treasury for collection through “offset against all payment streams currently authorized by law or to become authorized by law in the future.” A refund on his 2019 federal income tax return filed in January 2020 was applied toward the debt. He challenged this on several grounds, but a federal court said the application of his tax refund toward the delinquent federal student loan debt was proper (Seto, US Ct of Fed Cl, 5/9/22).

The Treasury Offset Program (TOP) is administered by the Bureau of Fiscal Service to collect past-due (delinquent) debts that people owe to state and federal agencies. This includes outstanding student loans that are delinquent by more than 120 days. The CARES Act temporarily suspended applications of federal payments (e.g., tax refunds, Economic Impact Payments) to outstanding debt. This pause in applying tax refunds to delinquent student debt applies through November 1, 2022.

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Tax Glossary

S corporation

A corporation that elects S status in order to receive tax treatment similar to that of a partnership.

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