Student Loan Disputes (Option 3)

If you believe that being forced to pay on a student loan in default will cause you financial hardship, then submit a student loan dispute to have the debt deferred or, in some cases, canceled outright.

Paying on this defaulted student loan will cause me financial hardship because:

1. They already offset (seized or taken) my tax refund, social security, or federal stipend.

When a Federal student loan goes into default, it becomes due and payable in full immediately.

Before offsetting your Federal tax refund, the agency that holds your loan was required to send a letter giving you at least 60 days’ notice and allowing you to avoid offset by either entering repayment or proving that you do not owe the loan.

If you failed to enter into a repayment agreement or prove that you do not owe the money within the 60 days, then any Federal payments owed to you, including tax refunds, become eligible for offset for as long as you owe the defaulted loan.

In most instances, they will not return the offsets to you.  However, you may contact the agency that holds your loan to discuss your circumstances.  You may be required to complete a statement of financial status.

2. Injured Spouses

If you filed jointly with your spouse, they might offset the entire refund, even though your spouse does not owe the student loan.  Non-liable or “injured” spouses may attempt to reclaim their portion of the refund by filing an injured spouse claim form (IRS Form 8379) with the Internal Revenue Service.  You may download this form at the IRS web site or request one from the IRS by calling 1-800-829-1040.  You also may be able to obtain the form at your local library, IRS office, or from your tax preparer.

Only the IRS will be able to answer questions about whether you qualify for an injured spouse refund and how much you may receive.

3. Earned Income Tax Credit

They can legally offset the earned income tax credit portion of your refund to pay your defaulted “Federal” student loan.

4. The loan servicer (or collector) are garnishing my wages

When a Federal student loan goes into default, it becomes due and payable in full immediately. 

Before garnishing your wages, the agency that holds your loan was required to send a letter giving you at least 30 days’ notice and allowing you to avoid offset by either entering repayment or proving that you do not owe the loan. 

If you failed to enter into a repayment agreement or prove that you do not owe the loan within the 30 days, then your wages become eligible for offset for as long as you owe the defaulted loan. 

However, you may contact the agency that holds your loan to discuss your circumstances and possibly negotiate to have the garnishment amount reduced.  You may be required to complete a statement of financial status.

5. The loan servicer (or collector) are demanding unreasonably high payments

When a Federal student loan goes into default, it becomes due and payable in full immediately, and the agency that holds the loan you owe has the legal right to demand that you repay the balance immediately or as quickly as possible.

The agency may legally demand that you attempt to borrow funds or sell some of your assets to pay in full.

However, you may provide proof to the agency that you are unable to meet their demands, especially in the form of a completed statement of financial status.

You should also understand that any voluntary payments you make while you are negotiating a payment schedule will both reduce the amount you owe and will demonstrate that you are acting in good faith.