Why Student Loan Defaulters Risk Losing Tax Refunds in 2026?

Student Loan Defaulters Tax Refunds: As the IRS gets ready to start tax filing on January 26, 2026, many student loan borrowers face a serious problem. Millions of people who failed to pay federal student loans may lose their tax refunds this year. The Education Department has restarted strong collection actions, which could put families under heavy money pressure.

The department now sends defaulted borrowers to the Treasury Offset program. This program allows the government to take money directly from federal payments. This includes tax refunds, Social Security checks, and other benefits. Last year, more than five million borrowers were already in default. Many more are close to falling into default, which increases the risk for 2026.

First Social Security Checks of 2026 Start Arriving Next Week

A consumer group raised concerns about this power. “The Department has unparalleled powers to collect on borrowers who have fallen into default-all without a court order-making it one of the most aggressive debt collectors in the nation,” said Protect Borrowers in a recent letter.

Government Restarts Seizing Refunds

In April 2025, forced collections officially started again. This marked the first full tax season since 2020 where student loan defaulters could lose refunds through Treasury Offset. The government can now take money from tax refunds, Child Tax Credit payments, wages, and Social Security benefits.

Consumer advocates warned borrowers about this shift. “The government has begun seizing tax refunds from borrowers in default for the first time since 2020,” warned the National Consumer Law Center. “It can even take refunds that include thousands of dollars of Child Tax Credits and Earned Income Tax Credits.”

Before this happens, borrowers receive a notice from the Education Department. The notice explains which loans are in default and gives 65 days to respond. Borrowers can object or ask for a hearing by phone or in person. The official notice clearly states, “The U.S. Department of Education (Department) holds the following defaulted student loan(s) or grant claims) which it intends to collect by Treasury offset against all payment streams authorized by law, either currently or in the future.”

Social Security payment Texas: Payment dates January 2026

What Borrowers can do to Protect their Money?

Time matters a lot for borrowers who get this notice. People should check their loan status at StudentAid.gov and act quickly within the 65-day window. If they miss the deadline, the government can take refunds without any more warnings. Borrowers who move and forget to update their address may never see the notice at all.

Experts say borrowers should explore repayment or forgiveness options as soon as possible. Choices may include paying the balance, settling the debt, joining a loan rehabilitation plan, or using the federal Direct Consolidation program. Some people may qualify for forgiveness or discharge, but rules apply.

The National Consumer Law Center explained the danger clearly. “If your name is on the list, the government will seize some or all of your tax refund to collect your outstanding debt unless you take additional steps before filing your taxes,” the NCLC explained.