Social Security payments, income tax refunds, wages paychecks may be stopped for millions of Americans. Here's how to check, resolve issue

Americans, who have defaulted on their federal student loans, face the prospect of having their income tax refunds seized this year. The federal government can also take money from other payments, like paychecks and Social Security checks, as per reports.

That's because the federal government has resumed efforts to collect on defaulted loans, including "offsetting," or seizing, income tax refunds. The income tax filing season opens January 26. Borrowers can call a special Treasury Department phone number to see if they are on the offset list. "Dial before you file," said Persis Yu, deputy executive director at the advocacy group Protect Borrowers. Even if borrowers are on the list and expect a tax refund, they can take steps before filing their return to get out of default and protect their refunds, NYT News Service reported.

Social Security Payments, Wages Paychecks

Part of your wages can be "garnished," or seized. The government said in December that it would begin notifying affected borrowers of paycheck deductions this month. While up to 15 per cent of a Social Security benefit check can also be taken, the Trump administration has so far held off on taking some of those payments.

How To Stop

The Federal Student Aid website says the government sends a notice to your last known address to inform you that a seizure is scheduled to begin in 65 days. You can take action within that period to resume payments and get out of default.

But many borrowers may have been notified years ago, before the COVID relief pause. If you forgot about the notice or misplaced it, you probably won't receive another one, borrower advocates said. It's always a good idea to update your contact information with your loan servicer, said Adam Minsky, a lawyer specializing in student loans.

Borrowers with older defaults may be the most likely to see the government intercept their tax refunds this year, said Robyn Smith, a senior attorney with the Legal Aid Foundation in Los Angeles who works with student borrowers. "It's important for them to contact the Treasury number," she said.

But more recent loan defaults are gradually being shifted to the federal collections system, she said. "The department can at any time send letters to new defaulters."

Important Contact Number

If you know you are in default, or if you haven't made loan payments in some time, call the Treasury Offset Program hotline at 800-304-3107. The system will ask you to enter your Social Security number to check if your name is on the list and, if so, what department referred you for collections. If the Education Department referred your debt, you probably have student loans in default, according to the National Consumer Law Center.

Some borrowers who are current on their payments, Smith said, have reported seeing an incorrect "default" notation when they log onto their student loan dashboard. If that happens, she said, contact your loan servicer.

If you are expecting a tax refund and are on the list for seizing your refund, you should try to take action before you file your return, said Kyra Taylor, a staff attorney at the National Consumer Law Center who focuses on student loans.

Consider filing for an automatic extension, she said. That gives you until October 15 to file, allowing time to make arrangements to get your loans out of default and avoid a seizure. To get an extension, submit Form 4868 by this year's April 15 federal tax deadline. Even if you miss the extended filing deadline, there's usually no penalty if you don't owe tax. But if you owe tax and don't pay it by April 15 -- even if you file for an extension -- you could be subject to penalties and interest on the amount owed.

If you check now and you're not on the offset list, check again right before you file in case it has been updated.

The most straightforward way is to get your loans out of default and into active repayment status. You can also repay the loan in full, if you are able, but few people can afford to do that.

The main options are rehabilitation, which involves making nine on-time monthly payments, or consolidation, in which you take out a new loan to pay off the old debt. Each has pros and cons.