Pursuant to statutory mandate, Guarantors have since 1986 referred millions of defaulted student loan debts to the Treasury Department for collection by offset against Federal income tax refunds and other payables to defaulters.
L.O.S.F.A. can request the Treasury Department to arrange a Federal offset to collect any defaulted student loan not being repaid by you. A federal offset includes any payment a borrower may receive from the U.S. Treasury Department. Federal law requires that L.O.S.F.A. give you prior notice of the proposed offset and an opportunity to review loan records, to demonstrate why the loan is not in default or is not enforceable, and to avoid offset by making arrangements to repay the loan. Notices are sent to you using the most recent address used by you in filing a Federal income tax return. You may object to the seizure after the deadlines explained in the notice; however, offset will not be delayed until resolution of your objections. Amounts collected in excess of the amount you prove to be due will be refunded by L.O.S.F.A.
For Federal income tax refund offsets, the amount subject to offset includes the amount of an earned income tax credit due you. Refunds payable to joint filing couples are subject to offset, as explained in the notice, but that portion of the refund owed to the non-debtor spouse can be recovered by that individual by filing an "injured spouse" claim with the IRS.
L.O.S.F.A. may also collect defaulted, Federally-insured student loans by offset against State income tax refunds. Borrowers not making satisfactory payments on a defaulted student loan can have their State refund seized and applied to the outstanding balance. L.O.S.F.A. is not required to send notices prior to certification of accounts for State income tax offset.