When you default on a federal student loan, the government has the power to withhold your tax refund. This hold is referred to as a tax refund "offset." The withheld refund is used to offset the balance of your student loan. Student loan tax offsets are handled by the U.S. Treasury Offset Program. Once the U.S. Treasury authorizes an offset, you will receive an offset notification letter. The offsets continue each tax year until your debt is satisfied. Depending upon your circumstances, it is possible to get a release on the offset hold on your income tax return.
Write a letter indicating why you are requesting a release of the hold on your income tax refund. For instance, explain that the debt is already satisfied, prior payment arrangements have been made, the debt is a result of identity theft or the debt is causing extreme hardship. An example of hardship includes the inability to provide basic needs for your household, including rent and utilities.
Submit your written request to the address indicated on the offset notification letter. To temporarily suspend the offset, your request must be submitted within 65 days of receiving the letter. If your request is due to financial hardship, attach proof of your expenses or hardship, such as an eviction notice or utility disconnect notice.
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Attend a hearing to discuss your request. The hearing may be conducted over the telephone, in person or in writing.
Wait to receive notification from the U.S. Treasury Offset Program, announcing that the hold on your refund has been reversed or suspended. You should receive notification within 60 days of your hearing.