Will Student Loans Take My Tax Refund in 2025?

Goran13/Getty Images; Illustration by Austin Courrege/Bankrate

The Department of Education has announced that it will resume collection actions on defaulted federal student loans on May 5, 2025, which means student borrowers with federal loans currently in default may be at risk of having their 2025 tax refund seized. A federal student loan is in default when you’ve failed to make payments for nine months (or 270 days). However, private student loans cannot take your tax refund — unless a court order grants the lender permission to garnish your wages.

If you’re in this situation or are concerned about your loans going into default soon, you’re not alone. More than 5 million Americans had one or more student loans in default as of April 2025, but that number is expected to increase drastically — potentially as high as 9 million borrowers in default by mid-summer 2025. If you want to avoid future collections activities, now is the time to make a plan for your student loan payments.

Will student loans take my tax refund in 2025?

After pausing student loan collections during the COVID-19 pandemic, the Department of Education ended the payment pause in September 2023. Loans began accruing interest and borrowers were once again required to make payments, though delinquencies were not reported.

If you’re approaching 270 days of missed payments, your loan could be categorized as in default. In such cases, your federal tax refund could be seized to repay some of your student debt. The U.S. Department of Education announced that it will start collecting on defaulted federal student loans on May 5, 2025, which opens the door for your 2025 tax return to be taken.

Federal student loans include Direct Loans, Direct Consolidation Loans, Federal Family Education Loans (FFEL) and federal Perkins Loans.

How to avoid student loan tax refund garnishment

If the U.S. Department of Education considers your loans to be in default, they could be entered into collections. When this happens, the Department of Education and the U.S. Treasury can take some or all of your tax return to offset the delinquent funds. The official name for this process is student loan tax refund offset.

If you’re at risk of having your refund garnished, the federal government will notify you 65 days before the offset starts. This notice will include instructions for contesting the offset. You may be able to do so if:

• You didn’t borrow the loans cited in the notice.
• You’re currently in bankruptcy.
• You’ve already paid the debt or are not actually in default.
• You are currently disabled.

If you are truly in default, you must bring your loans out of default to avoid garnishment. Options include:

• Consolidation: Loan consolidation allows borrowers to combine multiple federal student loans into a single loan, making repayment more manageable and affordable. To exit default, you must also enroll in an income-driven repayment (IDR) plan and make three consecutive on-time payments. Borrowers who consolidate their student loans also become eligible for certain loan forgiveness programs, though earning any sort of forgiveness is increasingly unlikely under the Trump administration.
• Loan rehabilitation: This option is available for Direct Loans and FFEL Loans and involves making nine consecutive monthly payments (based on your discretionary income).
• Paying the balance in full: If you pay off your student loan balance in full, you will no longer be in default — but this option isn’t affordable to most.

How to avoid student loan default

If you’re having trouble making your monthly loan payments, you’re not automatically destined for default. Federal student loans come with options, including:

• Repayment plans: Income-driven repayment plans base your monthly payments on your family size and income. Once you make 20 to 25 years of qualifying payments, your remaining balance will be forgiven. Depending on your loan type, you may have to consolidate your loans first to be eligible.
• Refinancing: This involves borrowing a new private loan with a lower refinance interest rate or lower monthly payment to replace your existing student loans. The primary downside to student loan refinancing is losing access to all federal benefits and protections. Plus, if you’ve missed loan payments or are in default, it will be hard to qualify for a loan refinance — and if you do, you’re likely to receive a high rate.
• Hardship options: If you’re in danger of defaulting, you can request deferment or forbearance, which temporarily pause your student loan payments.

If I owe student loans, will I get a tax refund?

It’s possible to receive a tax refund if you have student loans, as long as you’re current on the payments (or not delinquent enough to be in default). Simply owing money on loans doesn’t prevent you from getting a refund — defaulting on those loans does.

Whether you receive a tax refund depends on your unique tax situation. For instance, you may receive a refund if you overpaid your taxes in 2024 or qualify for certain tax credits. However, you may owe the IRS money if you underpaid your taxes.

Bottom line

The student loan tax offset program will resume on May 5, 2025. If you have federal student loans in default, your 2025 tax refund may be at risk.

If you’re behind on payments, try using a student loan calculator to come up with a repayment strategy, and contact your student loan servicer about getting caught up. Options like income-driven repayment plans, refinancing or consolidating your loans to lower your monthly payments can make this easier. Alternatively, consider placing them in forbearance or deferment if you’re in danger of defaulting.