Defaulted borrowers risk 2026 tax refunds

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 because 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 organization.

The Trump administration 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.

In addition to 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.

“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.

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.

(Borrowers who aren’t sure if they’ll owe taxes or receive a refund may benefit from preparing a mock return before the April 15 deadline. “Filing an extension does not extend the time to pay taxes owed,” said Kathleen Boyd, a certified financial planner and founder of Student Loan Savvy. If you do have a tax obligation, you’ll need to pay by the original deadline to avoid incurring interest and penalties, she said.)

Applying for a loan consolidation is typically the fastest way to get out of default, Taylor said. The process can be completed in as little as four weeks, she added. But some defaulted borrowers may be required to make several on-time payments before they can consolidate, and not all borrowers will qualify, including some who’ve already consolidated their loans or are facing wage garnishment.

Consolidating your loans, which involves repackaging your federal student debts into a new federal student loan, can also lead you to lose progress on your forgiveness timeline under some repayment plans, Taylor said. Borrowers may also lose out on current repayment options if the consolidation wraps up after June, due to President Donald Trump’s “big beautiful bill.”

Another way to get out of default is through a loan rehabilitation. That process involves making “nine voluntary, reasonable and affordable monthly payments,” according to the U.S. Department of Education. Those nine payments can be made over “a period of 10 consecutive months,” it notes on the StudentAid.gov site.

If you can’t finish the agreement before filing your taxes, you can try contacting your loan servicer and asking if they’ll stop collection anyway, Taylor said. They may agree to do so if you start rehabilitation not long after receiving a notice of default or if you’ve already made five rehabilitation payments.

After taking these steps, Taylor recommends calling the Treasury hotline back before submitting your taxes. If your name is no longer on the garnishment list, you can file with more peace of mind.