How to File Taxes With Defaulted Student Loans

by Michelle Hogan ; Updated July 27, 2017

When you are in default on your student loans, it is to your benefit to make arrangements to pay them off if possible. At one time, many college graduates defaulted on their student loans without penalty, but Congress has provided the U.S. Department of Education (DOE) with a variety of powers to recoup the money lost. In addition to being able to garnish your wages, the IRS can take your tax refund, if you are owed one.

Step 1

Call the Department of Education or the financial institution holding your loan. Find out definitively whether you are in default on your loan or whether you can make arrangements to pay it off before it goes to default status.

Step 2

File your taxes as you normally would. If you are not owed a refund, or owe money, pay the amount owed.

Step 3

File for an extension from the Internal Revenue Service (IRS). Filing an extension is important if you are owed a refund. This gives you time to sort out your default status and move it to a more favorable status before the IRS takes your refund.

Step 4

Repay your loan in full if you can, or make arrangements to pay it off. File your tax return.

Step 5

File your tax return even if you have not paid off your student loans. If the IRS needs to do so, it will confiscate your tax refund. You can allow the IRS to do this with no further consequence.

Step 6

File IRS form 8379, the Injured Spouse Allocation, if you are married and filing a joint tax return and a refund due is taken by the IRS to satisfy your defaulted student loan. If you filed jointly, but only you owe on a defaulted student loan, this form can be filed so your spouse can receive her portion of the tax refund, because the default was not her responsibility.

Step 7

Challenge the right of the government to confiscate your tax refund, if you choose, by asking the DOE for a hearing on your case. Contact the DOE directly by calling the number on the bill you are sent, or contact the collection agency to which your loan was sent. If you believe your loan should be cancelled or you are unable to pay it due to financial hardship, a hearing may be granted.

About the Author

Michelle Hogan is a writer and the author of 13 books including the 2005 bestselling memoir, "Without a Net: Middle Class and Homeless (With Kids) in America." Hogan studied English at American University and has been writing professionally since 1998. Her work has appeared in "The New York Times," "Redbook," "Family Circle" and many other publications.