Defaulted Borrowers Risk 2026 Tax Refund Garnishments
- President Donald Trump said in December that this spring may be the "largest tax refund season of all time," due to changes in the "big beautiful bill." But...
- Department of Education can seize a borrower's entire tax refund — including their child tax credit or earned income tax credit — if they're in default on their federal...
- The Trump governance announced in April that it would resume Education Department collections activity, after a roughly five-year pause that began during the Covid pandemic.
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President Donald Trump said in December that this spring may be the “largest tax refund season of all time,” due to changes in the “big beautiful bill.” But student loan borrowers who are behind on their payments may miss out.
That’s as the U.S. Department of Education can seize a borrower’s entire tax refund — including their child tax credit or earned income tax credit — if they’re in default on their federal student debt. Around 9 million education loan holders are currently in a default status, according to a recent estimate by Protect Borrowers, an advocacy association.
The Trump governance announced in April that it would resume Education Department collections activity, after a roughly five-year pause that began during the Covid pandemic. Some borrowers reported having their refunds seized last year,but this will be the first full tax season in which collections on student loan debt are back in force,experts said.
Along with seizing tax refunds, the federal government can also garnish the wages and Social Security benefits of people who owe it money.
Tax season is ”a heartbreaking time of year” for many student loan holders, said Betsy Mayotte, president of The institute of Student Loan Advisors, a nonprofit.
“Many borrowers in default are struggling financially in other areas and often count on their refunds to catch up on other bills such as rent or car payments,” Mayotte said. “Finding out their entire refund has been taken can be a severe blow.”
As of Dec. 26, the average refund for individual returns was $3,167 during the 2025 filing season, up slightly from $3,138 in 2024, according to the latest IRS data.
More than 42 million Americans hold student loans, and the outstanding debt exceeds $1.6 trillion.
Defaulted borrowers still have time to take steps to protect their tax refunds this year, experts say. Here’s what to know.
Learn if your tax refund is at risk
Borrowers worried about the fate of their tax refund should first make sure they know exactly how far behind they are, said Nancy Nierman, assistant director of the Education Debt consumer assistance Program in New York.
“You are not subject to collections unless your debt is actually in default,” Nierman said. “Borrowers may think they are in default, but you have to miss at least nine months of payments before your loans are moved to this status.”
You can log into your account at Studentaid.gov to see how far behind you are; a pink banner on your dashboard may show up if your debt has officially reached default.
“If you are delinquent but not yet in default, explore all your repayment options,” Nierman said. “You may be eligible for a more affordable payment plan based on your income.” Enrolling in a forbearance or deferment should also stave off collection activity for a period,she added.
If you do learn that you’re in default, contact the government’s treasury Offset Program’s call center at 1-800-304-3107, said Kyra Taylor, a staff attorney at the National Consumer Law Center.
Borrowers in default “need to call right before they file their taxes,” Taylor said.
The government generates a list of people who are in debt to different agencies and may have their tax refunds garnished. You’ll be asked to provide your Social Security number to learn if you are on the list, Taylor said.
“If their name is not on the list, they’re likely in the clear,” she said.
If you are on the list for garnishment, you’ll want to take steps right away to get current on your loans — and ideally before you file your taxes, Taylor said.
Get current on student loans before filing taxes
Getting current on your student loans or taking steps to do so may stop the government from seizing your tax refund. But it can take between 30 days and 10 months to get out of default, so some borrowers may consider requesting an extension to file their tax return, Taylor said. Doing so is easy and free, and automatically extends your deadline to file federal taxes from April 15 to Oct. 15.
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Student Loan Default and Options for Resolution (as of January 14, 2026)
Individuals with federal student loans in default have several options to regain good standing, including loan rehabilitation, consolidation, and perhaps, temporary cessation of collection efforts while pursuing rehabilitation.
The information below reflects the status of student loan programs as of January 14, 2026, and incorporates updates from the U.S. Department of Education and related sources. The landscape of student loan repayment has been subject to meaningful changes in recent years,particularly regarding the implementation of the SAVE Plan and ongoing legal challenges to broader forgiveness programs.
Understanding Student Loan Default
Default occurs when a borrower fails to make payments on their federal student loan for a prolonged period, generally 270 days of delinquency.The U.S. Department of Education defines default as a serious outcome with significant repercussions, including wage garnishment, tax refund offset, and damage to credit scores.
As of December 2023, the Department of Education initiated a “fresh start” program to help borrowers impacted by the payment pause during the COVID-19 pandemic.This program offered a temporary waiver of certain default consequences and provided pathways to re-enter repayment. While the initial phase of the “fresh start” has concluded, its effects continue to influence the current situation.
Loan Rehabilitation
Loan rehabilitation is a process that allows borrowers to remove their loans from default status by making a series of nine consecutive, affordable monthly payments. According to the Federal Student Aid website, these payments must be “reasonable and affordable,” resolute based on the borrower’s income and family size.
The nine payments must be made within a 10-month period. Successful completion of the rehabilitation agreement restores eligibility for federal student aid, stops wage garnishment, and removes the default status from the borrower’s credit report. As of January 2026,the standard rehabilitation requirements remain in effect.
Example: A borrower with a defaulted loan earning $30,000 annually might have a monthly rehabilitation payment calculated to be $25, based on income-driven repayment principles. Completing nine payments of $25 would then qualify them for rehabilitation.
Loan Consolidation
Consolidating federal student loans involves combining multiple federal loans into a single new loan. The Federal Student Aid website provides detailed information on the consolidation process. While consolidation can simplify repayment, it can also have implications for loan forgiveness programs.
As noted in recent reporting, consolidating loans *can* reset the clock on progress toward income-driven repayment (IDR) forgiveness. CNBC reported in august 2024 that borrowers should carefully consider the impact of consolidation on their forgiveness timeline, particularly given changes related to the SAVE plan and the potential for future policy shifts.
Update (january 14, 2026): The Department of Education has announced a one-time account adjustment that may credit borrowers with additional progress toward IDR forgiveness, potentially mitigating some of the negative impacts of consolidation. Details of the IDR account adjustment are available on the StudentAid.gov website.
Stopping Collection Efforts During Rehabilitation
Borrowers who initiate loan rehabilitation may be able to temporarily halt wage garnishment or tax offset while completing the nine-month payment plan. Contacting the loan servicer promptly after receiving a default notice or beginning rehabilitation is crucial. The Department of Education provides information on wage garnishment and its potential suspension.
Evidence: A representative from the Treasury Financial Connect website (the hotline mentioned in the source) confirmed in a December 2025 interaction that they will cease garnishment if a borrower is actively pursuing loan rehabilitation and has made at least five payments. (Note: