Student-loan borrowers behind on payments now have more time to figure out a plan — and protect their tax refunds

• The Education Department temporarily paused seizure of tax refunds for defaulted student-loan borrowers.
• Advocates urge student-loan borrowers to check if they're in default before filing their taxes.
• If borrowers are in default, they have several options to begin the process of returning to good standing.

If you're behind on your student-loan payments, you now have more time to figure out a payment plan before filing your taxes.

The Department of Education announced on January 16 that it's temporarily pausing wage garnishment and the Treasury Offset Program, which seizes federal tax refunds, to give defaulted borrowers more time to repay their loans.

Prior to this pause, defaulted borrowers were subject to both wage garnishment and the seizure of their tax refunds. Advocacy group Protect Borrowers and the National Consumer Law Center issued a warning to student-loan borrowers before the department's announcement, urging them to check whether they're in default before filing their taxes to prevent their refunds from being seized.

In May 2025, President Donald Trump's Department of Education resumed collections on defaulted student loans after a five-year pause, meaning that borrowers in default — which typically happens when a federal borrower does not make payments for more than 270 days — were once again subject to the consequences of defaulting, including wage garnishment and seizure of tax refunds.

Without the pause in place, the government could begin seizing a defaulted borrower's tax refunds after they file, leaving them without sufficient time to make a plan to return their loans to good standing.

"Once you've already filed your taxes, that process is underway. It is going to be nearly impossible to get your loans out of default before your refund would go out," Abby Shafroth, managing director of advocacy at the National Consumer Law Center, told Business Insider of what would happen were the pause to lift. "And then it's very, very unusual to be able to get that refund back after it's already been seized. So the real moment of opportunity for borrowers is before they file their taxes."

The two groups suggested that borrowers call the Treasury Department's Treasury Offset Program Call Center at 1-800-304-3107 to see if they're on the Treasury's default list for having some or all of their tax refunds seized.

Getting out of default

Over 5 million student-loan borrowers are in default, and Shafroth said that while the government is required to send a notice to borrowers informing them of their default status and that they're subject to garnishment and benefits seizures, those notices generally just go out once via physical mail, and they can be easy to miss or forget about.

If a borrower is in default and is on the list to have their refunds seized, they can request an extension to file their taxes, giving themselves more time to figure out their options. Those options include loan rehabilitation, which requires a borrower to contact their servicer and sign an agreement to make 9 payments within 20 days of each due date over 10 consecutive months. While the process is time-consuming, it has the benefit of eventually removing the default status from a borrower's credit report.

Another option is loan consolidation, which is quicker than rehabilitation but does not remove the default status from a borrower's credit history. A borrower can apply to consolidate their defaulted student loans into a federal direct loan, which they can then continue paying under an income-driven repayment plan.

Shafroth added that a borrower might be eligible to have their defaulted loan canceled if they qualify for specific cancellation programs, such as those for borrowers who attended schools that closed before they completed their programs.

"A lot of working people depend on their tax refund to make ends meet, to get caught up on rent, to pay for necessary car repairs or expenses," Shafroth said. "So that tax refund isn't a bonus for most people. It's really built into their annual budget, and it's important to protect."