When the Education Department announced last year that it would hold off on aggressive student loan collections while new repayment options were developed, millions of borrowers in default had reason to think their tax refunds were safe. They were not. The Treasury Department’s Treasury Offset Program, which intercepts federal payments to recover outstanding debts, has continued seizing refunds from defaulted borrowers throughout the 2026 filing season.
The disconnect is not a mistake. It is the predictable result of two federal agencies operating under separate legal authorities, on separate timelines, with no public coordination. Roughly 5 million federal student loan borrowers are in default, according to Federal Student Aid portfolio data, and many of them discovered this spring that a “pause” announced by one department did not stop another department from taking their money.
“I was told collections were paused, so I filed like normal and counted on that refund for my kids’ summer childcare,” one borrower wrote in a public comment on the Federal Student Aid website this spring. “Then the money just never came.” That experience has been echoed across online borrower forums and in calls to nonprofit student loan counselors, who say the volume of confused and frustrated borrowers spiked during the 2026 filing season.
Two agencies, two tracks
The Education Department directly controls wage garnishment, the process that diverts a portion of a borrower’s paycheck to repay defaulted loans. The Treasury Department runs the offset program, a separate system that intercepts tax refunds, Social Security benefits, and other federal payments to recover debts referred by federal and state agencies. The offset program collects billions of dollars annually across all categories of delinquent debt, not just student loans.
On May 5, 2025, the Education Department announced the restart of student loan collections after a years-long pandemic-era freeze. The plan was staged: Treasury offsets would resume immediately, and wage garnishment would follow later in the summer. The same day, Federal Student Aid sent an electronic announcement to colleges and universities asking them to reach former students about repayment options before garnishment began.
Then the messaging changed. In a subsequent release, the Education Department said it would delay certain involuntary collections to give borrowers time to enroll in new repayment plans expected by July 1, 2026. That announcement referenced both wage garnishment and Treasury offsets, creating the impression that all aggressive collection activity was being shelved. The Education Department has not specified whether the pause has a fixed end date or will simply last until the new repayment reforms are available.
Multiple news outlets, including The Washington Post, reported the move as a broad suspension. According to that reporting, Education Department official Nicholas Kent described the delay as covering both garnishments and refund seizures. For borrowers scanning headlines, the takeaway seemed clear: collections were on hold.
Why refunds kept disappearing
But the Treasury Offset Program did not stop. As of June 2026, Treasury has not issued any public statement confirming that it coordinated with the Education Department’s revised timeline. The offset program’s own documentation has not been updated to reflect a student-loan-specific pause, and no primary document from either agency explains why refund seizures continued after the delay announcement.
The most likely explanation is structural. The Education Department can pause actions it directly controls, like wage garnishment. But once a defaulted loan has been referred to Treasury for offset, stopping that process requires a separate administrative step: the Education Department would need to formally withdraw or suspend the referral, and Treasury would need to act on that request. Neither agency has publicly confirmed that this happened.
The result is a policy gap that lands directly on borrowers. Consider a single parent expecting a $3,000 refund built around the Earned Income Tax Credit. That money could vanish with no warning beyond a letter from the Bureau of the Fiscal Service, arriving after the fact. For households that depend on refunds to cover rent, car repairs, or medical bills, the loss is immediate and destabilizing.
Persis Yu, deputy executive director at the Student Borrower Protection Center, has noted in public statements that low-income borrowers who rely on refundable tax credits are disproportionately harmed by offsets, calling the practice “a transfer of wealth from the poorest borrowers to a system that failed to provide them adequate repayment options in the first place.”
How many borrowers are affected
The roughly 5 million figure comes from Federal Student Aid’s portfolio data, which is published as periodic snapshots rather than real-time totals. The most recent publicly available update reflects default counts from late 2025 and shows that default levels remain elevated compared with pre-pandemic baselines. These snapshots do not break out how many of those accounts are actively subject to refund offsets versus other collection actions, rehabilitation agreements, or temporary holds.
Still, the scale matters. Even if only a fraction of those 5 million borrowers filed tax returns with refunds large enough to trigger an offset, the program would affect hundreds of thousands of households during any given filing season. And because the offset program can also intercept Social Security and other federal payments, the exposure extends well beyond tax season.
What borrowers can do right now
Borrowers in default have several options, though none offer instant relief.
Loan rehabilitation requires nine voluntary, on-time monthly payments over a ten-month window. Once completed, the default is removed from the borrower’s credit history, and collection activity, including offsets, should stop. Payments are typically set at 15% of discretionary income, and borrowers can request an affordable amount based on their financial situation.
Direct Consolidation Loans can resolve default status more quickly, sometimes within weeks, but the default notation remains on the borrower’s credit report. Consolidation also resets the clock on any progress toward income-driven repayment forgiveness.
Injured spouse allocation: Joint filers whose spouse is not responsible for the defaulted loan can file IRS Form 8379 to recover their portion of a seized joint refund. Processing typically takes 8 to 14 weeks.
Adjusting tax withholding: Borrowers who anticipate continued offset risk may want to adjust their W-4 withholding so that less money is withheld from each paycheck, reducing the size of any refund that could be intercepted. This does not resolve the underlying default, but it limits the amount Treasury can seize in a given year.
Borrowers whose refunds have already been taken can request a hardship-based review through the offset program in limited circumstances. Those who believe their loans were referred to Treasury in error, or who were not notified before the offset occurred, may also have grounds to dispute the action. Federal law requires that borrowers receive written notice before an offset takes place, including information about their right to request a review, under the procedures outlined in the Treasury Offset Program’s own guidelines.
A gap neither agency has moved to close
As of June 2026, neither the Education Department nor the Treasury Department has issued a joint statement clarifying how their collection timelines interact. The Education Department’s delay announcement used language broad enough to suggest that all involuntary collections were being paused. The Treasury Offset Program’s continued operation tells a different story.
Meanwhile, ongoing litigation over the SAVE income-driven repayment plan has added another layer of uncertainty. Courts have blocked key provisions of SAVE, leaving borrowers unsure which repayment options will actually be available by the July 2026 target date. If those reforms are delayed further, the question of how long the Education Department’s collection pause lasts becomes even more urgent.
For the millions of borrowers caught between these two agencies, the practical reality is blunt: a “pause” announced by one department does not automatically bind another. Wage garnishment and refund offsets run on separate tracks, governed by separate authorities, and a halt on one channel can leave the other fully operational. Until both agencies publicly align their policies, or Congress forces the issue, defaulted borrowers are left navigating a system where the rules depend on which agency you ask.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
