IRS Will Tap Refunds to Pay Overdue Loans

The Internal Revenue Service plans to deduct money from the 1985 tax refunds of 750,000 Americans who defaulted on $1.6 billion in federal loans, the Administration said Thursday.

The Office of Management and Budget said that each defaulter ignored several “overdue” notices on loan payments before his name was given to the IRS.

Most of the taxpayers--657,894 of them--defaulted on student loans which, including interest, total $1.3 billion, an OMB spokeswoman said.

Other loans came from the Small Business Administration, the Department of Housing and Urban Development, the Agriculture Department and the Veterans Administration, she added.

Large Deductions Allowed

The IRS will deduct as much as possible from each refund, she said.

“Scofflaw defaulters who think they’ve outwitted and outrun the federal bureaucracy will learn firsthand that federal agencies now have the will--(and) the effective ways--of collecting overdue debts,” said Joseph Wright, OMB deputy director.

The Administration estimates that the government is owed about $20 billion in overdue loans.

The five agencies involved in the deduction plan are part of a pilot program that could be expanded next year, Wright said.

Besides the student-loan defaulters, 21,000 taxpayers owe $111 million to HUD, 31,073 owe $95.3 million to the Small Business Administration, 34,951 owe $32 million to the Veterans Administration and 4,679 owe $15 million to the Agriculture Department, officials said.

Some Heeded Warning

They added, however, that 41,000 loan holders who were sent final warnings have paid $14 million on their debts in the last few months.

Among the late payers, officials said, was a state legislator who denied he owed $2,898 on a student loan until the final notice arrived. The lawmaker then sent the government a cashier’s check.