Lapsed Student Loan Payments May Cost You a Tax Refund

The government notifies borrowers ahead of time that their refunds (and other expected government payments) may be withheld. However, borrowers may not always receive the notices, perhaps because they have moved. Or they may simply be overwhelmed by their financial circumstances and fail to open their mail, said Betsy Mayotte, director of consumer outreach at American Student Assistance....

The average federal tax refund is about $2,800, according to the Internal Revenue Service -- which means that missing out on a refund may have a big impact on a borrower's finances.

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About eight million federal student loan borrowers were in default at the end of last year, according to Department of Education statistics. (Most federal loans are deemed in default when no payment has been made for 270 days, or about nine months.)

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The government can withhold refunds and apply them to your student loan balance as long as the loans are in default. While some borrowers may actually see that as a repayment strategy, Ms. Mayotte said, "We encourage people to get into a long-term, sustainable payment plan."