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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 30, 2021

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Summary

  • There are eight different payment plans you can use to pay off student loans
  • If you don’t make a payment arrangement for student loans, your wages may be garnished
  • Don’t hesitate to call out errors if you’re making payments or you’ve repaid your loan

Have you ever received a letter from the IRS stating that your tax returns were taken? People across the internet have asked, “Will student loans take my tax refund?”

Student loan providers could take your tax refund if you haven’t made any payment arrangements.

Don’t worry — we’re here to help. Our guide explains everything you need to know about keeping your tax returns while paying off your student loans.

After you learn how to stop student loans from taking your taxes, enter your ZIP code in the free comparison tool above to compare multiple lenders in your area.

How can I stop student loans from taking my taxes?

You can prevent student loans from taking tax refunds by making payment arrangements. According to Federal Student Aid, borrowers have eight payment options for making student loan payments.

Here’s a list of payment plans you can use to repay student loans.

  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan
  • Pay As You Earn Repayment Plan (PAYE)
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Income-Sensitive Repayment Plan

Choose the plan that fits your needs. Every person is different, so what works for someone else may not work for you.

Regardless of your choice, making payments on your student loans will stop the IRS from taking your tax refunds.

Will the IRS take a refund for student loans in 2021?

Because of the COVID-19 pandemic, many student loans have paused interest rates to give borrowers a break on their annual income.

The March 2020 CARES Act halted payments and interest from student loans. President Biden has extended the Act, and it is set to expire on Sept. 30, 2021.

Will the IRS take my refund for student loans during COVID-19?

The short answer is no. The CARES Act prevents student loans from garnishing your wages during the COVID-19 pandemic. The CARES Act is set to expire toward the end of September.

If you can make small payments to your student loan, use this time to chip away at the principal balance.

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How do I know if my student loan lender will take my tax refund?

Before the pandemic, borrowers would receive many notices of past due statements.

If you neglect to pay your student loans, it could lower your credit score. In addition to damaging your credit, the Internal Revenue Service (IRS) will garnish your wages by taking your tax return.

Usually, the IRS will send you a letter telling you that your tax return was used to pay a debt.

Does the IRS take my entire tax refund?

The short answer is yes. If you default on a student loan, the IRS will take the total amount of your tax return and pay it toward your student loan debt.

Your lender will send you a tax offset before the tax return is seized. Tax refunds aren’t taken without notice.

However, you won’t have to be concerned about a default student loan until after September 30, 2021.

How do I prevent student loans from taking my 2021 tax returns?

If you defaulted on a loan, make arrangements to pay on your student loan. Don’t wait for Sept. 30, 2021. Have a payment plan ready to go. This gives the IRS plenty of time to process your student loan details.

In addition, you’ll be on record for making student loan payments months before the 2022 tax deadlines.

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Can student loans take my spouse’s tax refund?

If you file your taxes jointly, your student loans may take your tax refunds and your spouse’s refunds. It may be best for you and your spouse to file separately to prevent the IRS from taking tax refunds from both of you.

It’s best to make payment arrangements with the lender before you file jointly.

Should I use a personal loan to pay off a default student loan?

It depends on your income. If the student loan is less than 40% of your income, use a debt consolidation loan to build your credit, pay off the student loan, and secure a lower interest rate.

Any personal loan that’s over 50% of your income isn’t worth it. Try creating a budget to make payments on the student loan until you find a more viable solution.

How to Stop Student Loans from Taking Tax Returns: What’s the bottom line?

The CARES Act protects your tax returns until Sept. 30, 2021. After that, you’ll need to make arrangements to pay off student loans. If you find any errors from the lender or the IRS, make them known as soon as possible.

Student loan lenders will send out notices about what you should do before Sept. 30. The best way to prepare is to look at your options and find a payment plan that works best for you.

Now that you know how to stop student loans from taking your tax returns, enter your ZIP code to use our free online quote tool to compare multiple lenders near you.