Will my tax refund be offset due to a defaulted student loan?
Here’s the situation……
My student loan went into default about 7 months ago. I spoke with a collection company called Allied Interstate who was now handling the collection, and rehabilitation program. I entered into a student loan repayment program for 185.00 a month. I have made 6-7 payments now, and I have two payments left to rehabilitate my loan to “normal” status. I asked the account manager if my tax refund would be offset, or garnished……….he told me “no”, and just to make sure, to call a 1-800 number………..which is an automated service through the government to check if you have any federal debts. I called and the voice exclaimed I had no federal debt and that nothing would be offset. My question is…………..after I file my tax return, as long as I don’t miss any payments with the rehab program, could anything happen to change my status to offset while I am waiting for the return? Thanks in advance!
tj:
As the collection agency rep correctly explained, you will not be subject to refund offset, so long as you are actively honoring a repayment plan that you established with your lender.
As long as your loan is in the hands of the collection agency, you can relax with the assurance that the Department of Education has not asked the IRS for an administrative offset. That only happens when the collection agency gives up, and returns your file to the Department.
Refund offset is a last resort for the Department when a borrower refuses to negotiate with the collection agency, or when a borrower has failed to keep the promises he/she made when establishing an alternative repayment plan. So long as you are honoring your plan, you have nothing to worry about. In fact, when your loan is rehabilitated in a couple of months, the status will no longer reflect that the loan is “in default” at all.
I hope that reassured you. By the way, the IRS would notify you if the Department had requested a refund offset, because, by law, you must be given the opportunity to contest it. Chances are extremely slim that you could win a challenge to the offset, but my point is simply that you would already know if the Department had requested an administrative offset. If you haven’t received a letter from the IRS, that’s another reason that you can breath easy.
Good luck!
