Withholding tax refunds to pay for defaulted student loans began in 1986. A student loan is considered defaulted if the borrower is at least 180 (one hundred and eighty) days late in making a payment or if other conditions of the loan aren't satisfied. In September of each year, a letter is sent out to those who have defaulted on their student loans. If you receive such a warning letter, you have 65 days to contest (con-TEST) the action from the date it was issued. Failure to contest may grant the Internal Revenue Service, or IRS (I-R-S), the power to seize your tax refund. In order for the IRS to take such action, you must have a loan on which the U.S. Education Department has paid a reinsurance claim; you must have an outstanding balance of $25 (twenty-five dollars) or more; and you must have failed to repay your loan as required by the Higher Education Services Corporation. If you're concerned about the IRS seizing your federal income tax return, consult a tax-law professional to discuss your options.
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