Tax Refund Garnishment for Student Debt


The answer to the above question is different for every state.  Nonetheless, in most regions, the rules are very similar.  The Treasury Offset Program (TOP) permits federal and state government agencies to establish a wage garnishment order for unpaid state and federal taxes and other types of unpaid debt.

The following are just some examples of unpaid debt where the government is allowed to garnish a debtor’s wages without a court order:

  • Back child support;
  • Unpaid federal and state income taxes;
  • Private and federal student loans in default.

Each year when anyone files a federal and/or state income tax return, the government will first check the citizen’s file for any outstanding garnishment requests.  If there are pending requests for garnishments, the taxpayer will be notified by regular mail with a bill describing the delinquent debt and an explanation of the potential garnishment.  Once the debtor receives the notice, he or she must pay the bill in full or quickly respond with a phone call to make separate payment arrangements to avoid losing a tax refund. If the debtor does not respond in a sufficient amount of time, both federal and state governments have the authority to garnish tax refunds.  (Learn more about how to stop a tax refund garnishment).

If a taxpayer’s delinquent debt amount exceeds his or her tax refund(s) amount(s), their wages may also be garnished.  Wage garnishment is a legal procedure, which allows a creditor to withdraw money directly from a debtor’s paycheck.  Typically, garnishment of wages is the last and final attempt to collect a debt.  Wages garnished for traditional private lenders require a court order.  A private lender must notify both the debtor and their employer before a garnishment goes into effect.  On the contrary, garnishment for student loans, child support, tax refunds, and other federal loans does not require a court order.

How to Avoid Wage Garnishment

As mentioned above, with any type of wage garnishment, there is a legal process that the government and private creditor must follow in order to proceed.  If a substitute payment arrangement has been worked out to pay back taxes, child support or other debts, the laws in most states will not allow anyone to garnish your wages, including the state and the federal government.  However, the debtor must faithfully follow through with the agreed payment plan without defaulting.

If you are in default on your private or federal loans for college, the best thing to do is to get a handle on the debt before it takes control of your finances.  Student loan defaults will create a negative impact on a debtor’s credit score more than any other type of financial obligation.  Whether your wages are already being garnished or you are concerned your wages are at risk of being garnished, we can help to stop the garnishment by refinancing, consolidating or quite possibly even having part or all of your student loans forgiven.



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