Can student loans receive my tax refund?
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During a regular tax season, if you have federal student loans in arrears, your tax refund can be used to help 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 in default after 270 days of past due 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 Act of March 2020 put a hiatus on payments and interest on federal student loans, and it has since been extended under President Biden until September 30, 2021. The hiatus also prevents any collection activity, which includes the repay your federal tax to pay off your student loan, adds Rossman.
Taxpayers with past due federal student debt can take comfort in knowing that their 2020 tax refund is secure until at least September 30, 2021. But Rossman warns that all bets are off after that date.
Rossman’s tip: don’t delay filing your 2020 taxes
While the extension of the 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 does not apply to their debt. 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 have received your tax refund, it is your responsibility to keep it 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 extended their deadlines as well. 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 this is past September 30, 2021, end date of the current abstention.
“We do not know if refunds received after [Sept. 30, 2021] the date can or will be entered, ”Rossman told 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 towards your unpaid federal student loans that are in default.
Prevention is better than cure: It is 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 one of our best tax software.
Select reviewed 12 tax filing programs and ranked in the top five after rating them on a range of features such as cost, user experience, expert tax assistance, and Better Business scoring. Office. (Learn more about our methodology below.)
When you receive your tax refund, consider saving that windfall of money, if you can afford it. With an 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 to complete; or 2) loan consolidation, which only requires a quick application.
While both options offer benefits such as loan deferral, forbearance, and forgiveness eligibility, you will have fewer repayment plan choices if you choose loan rehabilitation. But if you go for loan rehabilitation, you can have the default record removed from your credit history. With loan consolidation, the record of the default remains in your credit history for seven years after the account has been paid in full.
Learn more about Federal Student Loan Rehabilitation and Consolidation on the US Department of Education’s Student Aid website.
To determine which tax software provides the best way to file your taxes online, Select analyzed 12 programs. We compared each program on a range of features, including:
- User experience
- Expert tax assistance
- Maximum precision and money-back guarantee
- Better Business Bureau (BBB) rating
- Customer reviews, when available
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 the service ranks.
Whether you are new to tax filing or a seasoned professional, user experience is crucial to completing and submitting your return quickly and without frustration. The services we chose had to be relatively user-friendly.
The ability to speak to 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 Best 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 between when you start your return and when you submit it.
Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.