When the IRS Offsets Your Refund for Past-Due Student Loans

How does the IRS offset my tax refund for past-due student loans?

A federal tax refund can be intercepted and applied to a past-due federal student loan through the Treasury Offset Program (TOP). TOP is run by the U.S. Department of the Treasury’s Bureau of the Fiscal Service and lets federal agencies collect past-due, legally enforceable debts by offsetting federal payments — most commonly federal tax refunds. (See the Treasury’s TOP overview.)

In my 15+ years as a CPA and CFP®, I’ve helped clients who expected refunds only to find those funds applied to older student loan balances. The shock is avoidable if you understand how TOP works and act early.

How a student loan becomes eligible for offset

• Federal student loans generally enter default after about 270 days (nine months) of missed payments for loans in standard repayment. Once a loan is in default, the Department of Education or its collection agent can take collection steps and may certify the debt to the Bureau of the Fiscal Service for offset through TOP. (U.S. Department of Education: Federal Student Loan Default.)
• The debt must be certified as legally enforceable by the creditor agency. Certification means the agency has followed its internal rules and provided the Treasury the documentation needed to collect via TOP.

Typical timeline and steps

1. Debt becomes delinquent and then, for most federal loans, reaches default (commonly ~270 days missed).
2. The Department of Education or a designated collection agency attempts collection and may notify you.
3. If unresolved, the agency certifies the debt to the Bureau of the Fiscal Service for TOP.
4. When the IRS processes your return and a refund is due, your SSN is checked against TOP records. If there’s a match, the refund (or a portion) is sent to the Treasury and applied to the certified debt.
5. You receive an IRS notice explaining the offset. The IRS generally sends notice LT11 (or similar) explaining the impending offset and rights related to the offset process. (IRS: Understanding Your LT11 Notice.)

If there’s any money left after the debt is satisfied, the Treasury returns the excess to you.

What amounts can be offset?

• The full amount of a federal tax refund can be applied to repay a certified federal student loan debt. There are some limited protections: if you filed a joint return and part of the refund belongs to an innocent or injured spouse, you can seek relief using IRS Form 8379 (Injured Spouse Allocation). The IRS will consider your allocation request for the portion that belongs to the injured spouse. (IRS: Form 8379.)
• TOP is not limited to student loans. It can also intercept refunds for delinquent child support, unpaid state taxes (if the state participates), or other federal agency debts.

What to do before an offset (prevention)

1. Contact your loan servicer the moment you miss payments or foresee trouble. Servicers can discuss Income-Driven Repayment (IDR), temporary forbearance or deferment, rehab options, or consolidation. These tools can prevent default and eventual referral to TOP. See our primer on Student Loans.
2. Enroll in an IDR plan if eligible — it ties your monthly payment to your income and can stop default while you make payments.
3. Consider loan rehabilitation for loans already in default. Rehabilitation requires a series of agreed-upon payments and can remove default status; once rehabilitated, loans are typically no longer subject to TOP collection for the debt that was rehabilitated. Our Student Loan Rehabilitation article walks through the steps and trade-offs.
4. Keep contact details current with your servicer so notices aren’t missed. Missed notices are a common reason borrowers don’t learn about collection activity until an offset happens.

What to do if your refund was already offset

1. Read the IRS offset notice carefully. The IRS sends notice after the offset that explains which agency requested the offset and how to contact them. That notice is your starting point.
2. Verify the debt with the reporting agency (usually the Department of Education or its collection agency). Ask for a debt validation statement, account history, and date of certification to TOP.
3. If you already paid the loan or the debt is incorrect, provide proof (canceled checks, bank statements, payment receipts) to the agency that certified the debt and to the Bureau of the Fiscal Service. They can reverse an erroneous certification and start return-of-funds processes.
4. If you filed a joint return and the debt belongs to your spouse, file Form 8379 (Injured Spouse Allocation) to regain your portion of the refund. You can attach Form 8379 to a paper return or file it after the refund is offset; processing can take time. (See IRS: Form 8379.)
5. Consider rehabilitation or consolidation if the loan is in default — rehabilitation can stop future offset risk for the rehabilitated loan balance and improve credit over time.

Dispute and reconsideration options

• Only the agency that certified the debt can typically remove it from TOP; you must contact that agency (often the Department of Education or its contractor) to request reconsideration, correction, or proof of payment. TOP itself acts on certified records and does not adjudicate underlying disputes.
• If the offset notice arrives after the offset, you may still have recourse: provide documentation of payment or discharge to the certifying agency and the Bureau of the Fiscal Service to begin a refund return process.

Common pitfalls and misconceptions

• “They can’t take my whole refund”: They can—if the refund matches a certified federal debt, TOP can apply the entire refund.
• “Private loans aren’t subject to TOP”: Correct—private student loans are not collected through TOP unless a state program or other mechanism is involved. TOP primarily collects federal and certain state-certified debts.
• “Filing an extension prevents offsets”: Filing a tax extension does not stop TOP. An extension delays filing but not the Treasury’s authority to offset refunds when a return is processed.

Practical tips I use with clients

• If you depend on a refund for essentials, treat delinquent federal student loans as urgent. Contact the servicer before tax season.
• If contacted about default, ask for a written statement of the steps needed to rehabilitate the loan and timelines. Successful rehabilitation is often the fastest route to stop TOP activity tied to that loan.
• Use certified mail or secure electronic records when disputing payments. A clear paper trail makes it easier to have an offset reversed if the debt was already paid.

Related resources and authoritative guidance

• Treasury Offset Program (Bureau of the Fiscal Service): https://www.fiscal.treasury.gov/debt-management/debt-collection-improvement-program/treasury-offset-program.html
• IRS: Understanding your LT11 notice and Form 8379 (Injured Spouse Allocation): https://www.irs.gov/individuals/understanding-your-lt11-notice and https://www.irs.gov/forms-pubs/about-form-8379
• U.S. Department of Education: Federal Student Loan Default information: https://studentaid.gov/manage-loans/default
• CFPB: Your rights when dealing with debt collectors: https://www.consumerfinance.gov/consumer-tools/debt-collection/

When to get professional help

If a refund offset moves your household cash flow into crisis, consult a CPA, tax attorney, or a student-loan-savvy financial planner. In my practice, a timely call to the servicer combined with a rehabilitation or IDR enrollment often prevents repeated offsets and reduces long-term financial harm. Complex disputes (e.g., identity theft, discharged loans that still show as owed) benefit from professional representation.

Short checklist (quick actions)

• If you haven’t missed payments: confirm loan status and update contact info.
• If you are delinquent: call your loan servicer now to discuss IDR, deferment, or consolidation.
• If the refund was offset: read the IRS notice, contact the certifying agency, gather proof of payments, and consider filing Form 8379 if you filed jointly.
• If in default: explore rehabilitation — it can stop most TOP activity tied to that debt once completed.

Disclaimer: This article is educational and not individualized tax, legal, or financial advice. Rules and procedures change; check the cited agency pages and consult a qualified tax or student loan professional for advice specific to your situation.