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How to get your refund back as a student loan tax offset hardship

January 18, 2018

A student loan tax offset hardship may allow you to get some or all of your refund back. But it doesn't happen right away. It may take a few weeks.

Your refund was offset for a defaulted student loan. You’re freaking out. But there may be something you can do to get some of your refund back: apply for a student loan tax offset hardship.

Student loan tax refund offset hardship may allow you to get some of your refund back

What is a tax refund offset

Basically, a tax refund offset is where your refund is taken (aka intercepted/offset) to repay a debt you owe the government. In this case, the refund was taken to repay a federal student loan that’s in default.

How the tax refund offset process works

You’re supposed to get notice before your refund is taken to let you know that your refund will be taken if you don’t enter into a repayment agreement. I say supposed to get notice because this doesn’t always happen. Often, the notice is sent to the last address the Department of Education has on file for you. In some cases, this means the notice is sent to an address you haven’t lived at in years.

But let’s say you did get the notice. What happens then? The notice you should tell you a few things:

  • How much you owe
  • Your right to inspect and copy the loan records
  • Your right to enter into a written repayment agreement

If you’re worried that your refund may be offset, call the Treasury Offset Program at 800.304.3107.

How to request a student loan tax offset hardship

If you’re refund has already been taken, you don’t have time to complain about how you didn’t get notice. That argument isn’t going to get back that tax refund offset quickly. Instead, you need to focus on requesting a student loan tax offset hardship.

By requesting a student loan tax offset hardship, you’re asking the Department to refund some or all of your refund because the tax refund offset has caused you and your dependents a financial hardship.

Here’s how you make your request.

First, determine you have a financial hardship for a tax refund offset

Typically, your hardship must be for one of these reasons:

  • You’ve received an eviction notice within the past 90 days
  • You’ve received a foreclosure notice within the past 90 days
  • You’ve received a disconnection notice for one of your utilities (gas, lights, sewage, etc.) within the past 90 days
  • You’re homeless

If you don’t have one of these hardships, you likely won’t get your refund back. But you should still try. All they can do is say no. Just make sure you provide supporting documentation.

Next, gather supporting documents and complete necessary forms

After you determine you have a financial hardship, start gathering supporting documents. For instance, if you’re facing eviction, get a letter from your landlord or property management that:

  • I signed by an official representative of the landlord or property managment company
  • Has a recent date (within 90 days of the offset) and
  • Lists the total amount in arrears

Make a copy of that letter. Don’t send the original. You won’t get it back.

Once you do that, check to see if the company that took your refund requires you to complete a form to request a student loan tax offset hardship. Some, but not all do. For instance, Educational Credit Management Corporation has a tax offset hardship refund request form that you must complete and submit with your supporting documents.

Finally, submit your student loan tax offset hardship request

Where you submit your harsdship request, depends on who offset your refund. For many of you, your refund was offset by ECMC or the Department of Education.

Here’s the contact information for ECMC:

ECMC
Attn: Tax Offset
PO Box 16096
St Paul MN 55116-0096
Fax: 1-877-645-7479

ECMC says it takes about 30 days to process a hardship request.
Here’s the contact information for the Department of Education:

United States Department of Education
Attn: Federal Offset Unit
PO Box 5227
Greenville TX 75403-5227

The Department says that it will notify borrowers within 10 days of getting a hardship request.

***

If you’re not sure who offset your refund, call the Treasury Offset Program at 800.304.3107. They will be able to help you find that information.

Innocent spouse student loan default

For those of you who are married and filed a joint return, you should be able to get back your spouse’s portion of the refund. To do that, you must complete a Request for Innocent Spouse Relief, IRS file form 8857.

Completing the form is fairly straight-forward, but if you need help, use these instructions

Where to mail innocent spouse form

You can mail the form to:

Internal Revenue Service
PO Box 120053
Covington KY 41012

You can also fax it to 855-233-8558. If you fax, make sure you write your name and SSN on any attachments.

Innocent spouse form processing time

Beware. This process is slow. The IRS can take up to 6 months to determine whether to grant or deny your request.

But what if your refund hasn’t been offset yet

For those of you who got notice before your refund was taken, here’s what you can do.

Start by challenging the offset for a defaulted student loan

Before taking your refund, the Department will notify you and give you an opportunity to challenge its taking. To challenge the taking, you must submit a request for review to the Department. Here are some of the defenses you can use to challenge the offset.

  • You repaid the loan;
  • You don’t owe the money;
  • You’ve already entered into a repayment agreement with the loan holder and are making the required payments;
  • You filed for bankruptcy and your case is still open or your student loans were discharged;
  • Your school failed to pay you an owed refund;
  • Your loan isn’t enforceable because of forgery or other act;
  • You’re eligible to discharge your loans because your school closed or your school falsely certified you were eligible for federal aid; or
  • You’re totally and permanently disabled (or the borrower is dead).

After you’re notified of the Department’s intent to take your refund, send a written request to inspect your loan file within 20 days.

Here’s a sample written request to inspect your file.

If that fails, try delaying the offset

You can delay the offset of your refund by filing a statement of financial status and request for review. You must request the review either within 65 days of getting the offset notice or 15 days after you get your loan file, whichever is later.

And if that fails, request a hardship reduction

You can also request a hardship reduction to stop your tax return from being offset. Under the hardship program, the Department will review your request that your offset be stopped because the collection of your student loans causes you a financial hardship.

When you submit your request to the Department, you must also submit:

  • The Treasury’s notice;
  • A statement of your refund amount;
  • Proof of your annual income;
  • A statement of financial status; and
  • A letter explaining your financial hardship and any supporting documents.

Send the documents to:

United States Department of Education
Attn: Federal Offset Unit
PO Box 5227
Greenville TX 75403-5227

The Department says that it will notify borrowers within 10 days of getting a hardship request.

Here’s a sample letter requesting a hardship reduction. You can also use the Student Loan Borrower’s Assistance Project’s self-help packet to assist you in requesting a hardship reduction.

You can also stop the offset by entering into a repayment agreement

If you enter into a repayment agreement, you can stop the offset. Entering a repayment agreement may is often as simple as calling the Department and asking to be placed in a repayment agreement you can afford.

Note, if you do reach an agreement, you must make your first payment within either 65 days of the original notice or seven days after a a reviewer renders a decision.

Or maybe you can stop the offset by consolidating your student loans

You can stop the offset from happening by consolidating your defaulted student loans. Once you’ve consolidated your student loans, your new loan will be in good standing. And since it’s in good standing you won’t be in default. Thus your tax return won’t be offset.

The consolidation process takes about 30 days to complete. Because of that, it may make sense to file your tax return after your consolidation is complete. Waiting might require you to request an extension of time to file your tax return.

You can also try and stop the tax refund offset by rehabilitating your student loans

You can stop the offset from happening by rehabilitating your student loans. Rehabbing your student loans requires you make timely payments for nine months over a 10 month period.

Because rehabilitating your student loans takes time, you might consider requesting an extension of time to file your tax return.

And if you can’t consolidate or rehabilitate or enter into a repayment agreement, consider stopping the tax offset by filing for bankruptcy

You can stop the offset by filing a bankruptcy petition (usually chapter 7 or chapter 13) before the offset occurs. Filing bankruptcy triggers an automatic stay that prohibits almost all actions against your property.

If the offset has already happened, you might still be able to recover that amount if you act quickly. There are provisions under the Bankruptcy Code that might allow the offset to be reversed.

While your bankruptcy case is pending, you might be able to reach a repayment agreement with the Department or do something else so that it won’t intercept your tax refund.

A tax refund offset could benefit you

While most people don’t want their refunds to be offset, there are some (usually people who want to pay off their student loans quickly) who may benefit from letting it happen. The benefit comes from how the funds from tax offsets are supposed to be applied to satisfy a debt. Under the Treasury Department’s regulations, those funds should be applied to principal and interest, not to collection fees. So if the funds are applied in this manner, the debt will decrease more quickly than if monthly payments were made.

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