Student Loans May Require for Tax Refund

Federal student loans written on a paper
Students may have an unpleasant surprise regarding their student loans and refunds.

Authorities have announced that student loans will require a tax refund. This might be an unpleasant surprise during tax season. The refunds which students might be expecting may be denied.  The government is entitled to decline funds from student loan borrowers, this being called tax refund offset. Moreover, the government has the right to apply the amount of money to the loan balance.

The government has the right to withheld funds from borrowers’ student loans

Adam Minsky, a Boston lawyer, working for student loan borrowers, stated that this practice is extremely common. Whenever a client indicates that he or she has a problem with their loan default, Minsky assumes that it has to do with a refund issue. Borrowers are usually notified by the government ahead of time, informing them that their fund might be withheld.

Betsy Mayotte, the director of consumer outreach at American Student Assistance, claims that borrowers might not always get these notices, most likely because they moved out or because they might feel overburdened by their financial issues and omit to open their mail. The American Student Assistance is a private nonprofit company which has managed many student debts since it became a federal loan guarantor.

Borrowers are notified about this change ahead of time

The company is now bound to provide educational services and counseling to help families decide upon their preferences when it comes to college financing. Minsky pointed out that even if borrowers receive the notice and try to read it, they may not understand much since the Treasury Offset Program tends to use bureaucratic jargon. Many people may not even realize that they are expecting for some payments which fail to appear, being withheld by the government.

Based on the data provided by the Internal Revenue Service, the refund for the average federal tax was estimated at $2,800. This indicates that if a borrower misses out on a refund, this might have a huge impact on their finances. Persis Yu, the director of the Student Loan Borrower Assistance Project directed by the National Consumer Law Center, stated that if a borrower believed that he or she might be in this position, they need to reduce withholding from their normal paycheck. Thus, they will reduce the amount of their potential refund.

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