IRS to Hold Tax Refunds of Student Loan Defaulters

Secretary of Education William J. Bennett said today that his department will ask the Internal Revenue Service to withhold tax refunds for nearly 1 million student loan defaulters unless they start paying their debts.

Another 1 million borrowers will get notices from state agencies warning that they will be denied tax refunds next year unless they make good on their debts, Bennett’s agency said.

“This is a major step which should show loan defaulters that we are dead serious about collecting these debts to American taxpayers,” Bennett said in a statement.

Starting this Saturday, his department will mail the notices to nearly 1 million people who defaulted on Federally Insured Student Loans or National Direct Student Loans.

State loan guarantee agencies will dun 1 million others who defaulted on Guaranteed Student Loans.

If the recipients do not begin repaying the loans within 60 days, the department will ask the IRS to withhold any tax refunds up to the total amount outstanding on the loans.

Bennett’s department recently acted to blacken the credit ratings of student loan defaulters by turning their names over to national consumer credit bureaus. It also has referred the names of 16,000 defaulters to the Department of Justice for prosecution.

The Deficit Reduction Act of 1984 gave all federal agencies the right to join forces with the IRS to collect money owed the government, starting with tax year 1985.