How tax refund offsets work (step-by-step)

Tax refund offsets for federal student loan defaults are handled through the Treasury Offset Program (TOP), run by the Bureau of the Fiscal Service. When the U.S. Department of Education (DOE) determines a loan is in default (typically after about 270 days of nonpayment for most Direct and FFEL loans), it can refer the debt to TOP. Once referred, Treasury will match incoming federal tax refunds against the DOE’s delinquent-debt records and redirect a borrower’s refund to pay the past-due balance.

  • Identification of default: Most federal student loans are considered in default when a borrower is 270 days delinquent (StudentAid.gov). The loan holder reports the account and begins collection activity.
  • Agency referral to TOP: DOE refers the delinquent account to the Treasury Offset Program for administrative offset (31 U.S.C. § 3716). Treasury keeps a centralized database and performs the matching when refunds are processed (Treasury, Bureau of the Fiscal Service).
  • Matching and offset: When the Internal Revenue Service issues a federal tax refund, Treasury checks TOP matches. If there’s a match, Treasury applies the refund toward the DOE’s claim and sends a notice to the borrower explaining the offset (IRS and Treasury guidance).

Authoritative sources: StudentAid.gov (default and collections), Treasury’s TOP pages, and the IRS’s information about offsets (see studentaid.gov, Treasury.gov, IRS.gov).

What borrowers receive and what to expect

If your tax refund is offset, you should receive a written notice explaining:

  • The agency that requested the offset (usually the Department of Education);
  • The amount of the offset;
  • Contact information for the agency that holds the debt;
  • Instructions for how to dispute the debt or request a review.

The notice is required as part of the administrative-offset process; it’s your first practical chance to resolve questions about the debt, request a review, or provide documentation (Treasury, Bureau of the Fiscal Service).

In my practice I’ve seen borrowers who had planned budgets around refunds suddenly left without cash when offsets were applied. The notice is often the only cue that a borrower was in default, which is why monitoring loan status is important.

Common triggers and who’s affected

Any borrower with a federal student loan that has entered default can be subject to a refund offset. That includes:

  • Borrowers who stopped making payments after leaving school,
  • Borrowers in financial distress who did not arrange a repayment option,
  • Borrowers who didn’t realize grace periods ended and never entered repayment.

Note: Default rules and timelines can vary by loan type, but the 270‑day benchmark applies to most Direct and FFEL loans administered by the DOE (StudentAid.gov).

Remedies and steps to stop or reclaim an offset

If you discover your refund was offset, act promptly. Options include:

  1. Confirm the debt and get details. Start with your loan servicer or the DOE’s collections office and check the National Student Loan Data System (NSLDS) to verify account status (studentaid.gov).

  2. Request a review or dispute if the debt is incorrect. If you believe the debt is not yours, was miscalculated, or is the result of identity theft, follow the dispute process in the notice and contact the DOE and Treasury immediately. Document all communications.

  3. Rehabilitate the loan. Loan rehabilitation removes the loan from default after you make a series of agreed-on payments (typically nine reasonable, affordable payments within ten months for many federal loans). After successful rehabilitation, DOE notifies credit bureaus and should stop future offsets; you can also request return of future payments that were offset after rehabilitation (StudentAid.gov; see our in-depth guide on [loan rehabilitation](