Is the IRS Taking Refunds for Student Loans in 2025?

Many people rely on their tax refunds each year, but if you have unpaid federal student loans, the IRS can take your refund to cover the debt. This process, known as a tax refund offset, has affected many borrowers with defaulted loans, leaving them without expected funds.

With changes in federal policies and repayment programs, it’s important to know whether refund offsets will apply in 2025. Understanding how this works can help you plan ahead and explore ways to protect your refund.

Federal Refund Offsets for Student Loans

When a borrower defaults on a federal student loan, the government can recover the debt by intercepting tax refunds through the Treasury Offset Program (TOP). Managed by the Bureau of the Fiscal Service, this program allows federal agencies to collect overdue debts by redirecting tax refunds before they reach the taxpayer. The Department of Education refers defaulted loans to TOP, and once a debt is certified for collection, the IRS can withhold all or part of a refund to apply toward the outstanding balance.

A loan is considered in default after 270 days of missed payments. Once transferred to a guaranty agency or the Default Resolution Group, the debt is reported to TOP. Borrowers receive a notice before the offset occurs, giving them an opportunity to challenge the debt or enter a repayment agreement. If no action is taken, the IRS proceeds with the offset.

Which Loans Qualify for Offsets

Only defaulted federal student loans held by the U.S. Department of Education or a guaranty agency are subject to tax refund offsets. This includes Direct Loans and Federal Family Education Loan (FFEL) Program loans that have been in default for an extended period. Perkins Loans, though less common, can also be collected through this process if assigned to the Department of Education.

Private student loans are not subject to federal tax refund offsets. Since these loans are issued by private lenders, collection efforts require a court judgment before wage garnishment or bank levies can occur. Borrowers with private loans facing financial hardship should consider negotiating a settlement or enrolling in a hardship forbearance program.

Parent PLUS Loans are eligible for offset if the parent borrower defaults. Since these loans are taken out in the parent’s name, any tax refund offset would apply to the parent’s tax return, not the student’s. Parents relying on their refunds for household expenses should explore consolidation or rehabilitation options to remove the loan from default and prevent future offsets.

How to Check for Potential Offset

To determine if your tax refund is at risk, contact the Treasury Offset Program (TOP) call center at 800-304-3107. This automated system, available 24/7, allows individuals to check if their Social Security number is associated with an offset. If an offset is scheduled, the system will confirm the agency responsible for the debt and provide contact information.

For a more detailed breakdown, log into the Federal Student Aid (FSA) website at [StudentAid.gov](https://studentaid.gov) using your FSA ID. This will show loan servicer details and any collection actions in progress. If your loans have been transferred to a Default Resolution Group or a guaranty agency, an offset is likely. Checking your credit report at [AnnualCreditReport.com](https://www.annualcreditreport.com) can also reveal defaulted federal loans that may lead to refund seizure.

Payment Arrangements to Avoid Offset

Setting up a repayment plan before a loan defaults is the best way to protect a tax refund. Borrowers facing financial hardship should contact their loan servicer to explore options such as income-driven repayment (IDR) plans, which lower monthly payments based on earnings and family size.

For those already in default, loan rehabilitation allows borrowers to regain good standing and stop future offsets. This process requires making nine voluntary, on-time payments within ten months, typically calculated as 15% of discretionary income. Lower payments can be negotiated with proper documentation. Completing rehabilitation removes the default status from credit reports and restores eligibility for federal aid programs.

Loan consolidation offers a faster alternative by combining defaulted loans into a new Direct Consolidation Loan. To qualify, borrowers must either agree to repay under an IDR plan or make three consecutive monthly payments before consolidation is approved. While this does not erase the default history, it immediately lifts a loan out of collections and halts further offsets.

Status of Refund After Offset

Once a tax refund has been offset to repay defaulted student loans, borrowers may wonder if they can recover the funds. The process is automated, meaning the IRS does not have discretion over whether to withhold the refund once the debt is certified for collection. However, there are ways to challenge the offset.

Borrowers who believe the offset was made in error can file a dispute with the Department of Education or the agency holding the loan. Common reasons for a successful challenge include proving the loan was already paid, demonstrating the borrower is not legally responsible for the debt, or showing that the loan was discharged due to disability or school closure.

Individuals experiencing extreme financial hardship—such as eviction, utility shutoff, or medical emergencies—may apply for a hardship refund. While not guaranteed, submitting documentation proving severe financial distress can sometimes lead to a partial or full refund of the offset amount.