How Does the Treasury Offset Program Work With Student Loans?

The Treasury Offset ProgramTreasury Offset Program (TOP)A federal program that collects past-due debts, including defaulted student loans, by withholding federal payments such as tax refunds, some Social Security benefits, and federal retirement payments. (TOP) can seize your tax refund, Social Security benefits, and other federal payments if your federal student loans are in defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports. — automatically, without a court order. As of January 2026, the Department of Education has paused all involuntary collections on defaulted federal student loans, including Treasury offsets. The timeline for resumption is unclear.

How Student Loan Offsets Work

When your federal student loans are in default, the government can intercept your federal payments before they reach you. The Bureau of the Fiscal Service (BFS) matches your Social Security number against upcoming federal payments and redirects them toward your defaulted balance.

• Your loan defaults. Federal student loans enter default after about 270 days of missed payments.
• Your debt is reported to TOP. The Department of Education reports the defaulted balance to BFS. If your loans are FFEL loans held by a guaranty agencyGuaranty AgencyA state or nonprofit agency that administers defaulted FFELP loans and acts on behalf of the federal government in collecting those debts., the Department handles the referral on the agency's behalf.
• BFS matches your payments. Any federal payment you're set to receive — tax refund, Social Security, federal salary, federal contractor payments — is checked against the TOP database.
• The payment is intercepted. If a match is found, BFS applies some or all of the payment to your student loan balance. You receive whatever is left, if anything.
• Offsets repeat. This continues every time you're owed a federal payment until you resolve the default or pay the balance in full.

There is no statute of limitations on federal student loan collections.

Current Status of Student Loan Offsets

On January 16, 2026, the Department of Education announced a temporary delay on all involuntary collections for defaulted federal student loans, including Treasury offsets, wage garnishment, and seizure of federal benefits. As of April 2026, the Department has not confirmed a restart date for involuntary collections. New repayment plans are expected to launch July 1, 2026. Before this pause, the Department restarted Treasury offsets on May 5, 2025 — ending a collection pause that began during the COVID-19 pandemic in March 2020. Related: Student Loan Default: Consequences & How to Fix It

Which Federal Payments Can Be Offset

TOP can intercept most federal payments, but certain benefit types have protections that limit how much can be taken. Tax refunds: Your entire federal tax refund can be offset, including the Earned Income Tax Credit (EITC) and Child Tax Credit. There is no protected amount. State tax refunds can also be intercepted. Social Security benefits (SSDI, retirement): These can be offset, but with limits. The offset amount is the lesser of:

• 15% of your monthly benefit, or
• The amount by which your benefit exceeds $750 per month

If your monthly benefit is $850, the offset would be $100 (the amount exceeding $750) — not $127.50 (15% of $850) — because $100 is the lesser amount. Supplemental Security Income (SSI): Fully exempt from TOP. Federal salary: If you're a federal employee, up to 15% of your disposable pay can be offset. Payments that are not offset: Certain disaster relief payments, tribal trust funds, and specific payments from agencies like the VA are exempt from TOP. The Bureau of the Fiscal Service publishes a complete list of exemptions. The key distinction: exemptions protect certain payments from being taken — not certain debts from being collected. Your student loan debt is always eligible for offset. Related: Can Social Security Be Garnished for Student Loans?

How to Check If You're in the Treasury Offset Program

If you're in default and expecting a federal payment, there are three ways to find out whether an offset is pending or has already occurred. Call the TOP hotline. The automated line at 800-304-3107 confirms whether a debt is flagged for offset. It won't provide the amount owed or which agency reported the debt, but it will tell you whether you're on the list. Check your IRS online account. Log into your IRS account and look at your refund status. If it shows "applied to past due obligation" or a reduced refund amount, an offset has likely occurred or is pending. Check your Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. account. Log into StudentAid.gov and check your loan status. If your loans show as defaulted and you haven't started rehabilitationRehabilitationA federal program for borrowers in default that requires nine voluntary, on-time monthly payments over ten months. After rehabilitation, the default is removed from credit reports and federal aid eligibility is restored. It is available once per loan. or consolidation, your federal payments are subject to offset.

IRS Transcript Codes That Show an Offset

If an offset has already happened, it appears on your IRS tax transcript as one of two codes:

• Code 826 — "Credit transferred out." This means part of your refund was redirected to pay a debt held by another federal agency. The transcript shows the amount and a reference to the receiving agency.
• Code 898 — "Refund applied to non-IRS debt." This confirms that the offset went to a non-tax obligation — such as a defaulted student loan. The amount and receiving agency appear alongside the code.

If you see both codes on your transcript, an offset occurred. The remaining refund amount (if any) appears separately.

How to Request a Hardship Reduction

Under the Debt Collection Improvement Act, the Department of Education may reduce or eliminate an offset if doing so would cause financial hardship. Before referring your debt to TOP, the Department of Education must mail you a notice of intent to offset. The notice includes:

• the amount owed
• your right to inspect your loan records
• your right to request a review
• your right to enter a repayment agreement to avoid the offset

If you've moved and your address isn't up to date with the Department, the offset can still proceed. Courts have held that actual receipt of the notice is not required. Once you receive the notice, you have three options: contest the offset, request a hardship reduction, or enter a repayment agreement.

Contest the Offset or Request a Hardship Reduction

To have your objections considered, you must file a request at the address listed in the notice by the later of: 65 days after the date of the notice, or 15 days after receiving your loan file, if you requested it Grounds for contesting an offset:

• The loan amount is incorrect because you've already repaid some or all of it
• You've entered a repayment agreement and are current on payments
• You've filed for bankruptcy and the case is still open, or the loan was discharged
• You're totally and permanently disabled and have applied for a TPDTotal and Permanent Disability Discharge (TPD)A federal loan discharge for borrowers who are totally and permanently disabled, as documented by the Department of Veterans Affairs, the Social Security Administration, or a physician's certification. discharge
• The Social Security number on the debt doesn't match yours
• The offset would cause financial hardship

A hardship claim requires documentation of your income, expenses, and dependents showing that losing the refund would prevent you from meeting basic living expenses. The Department has a specific form for Social Security offsetSocial Security OffsetThe withholding of a portion of Social Security retirement or disability benefits to repay a defaulted federal student loan. Federal rules cap the offset so that benefits do not fall below a protected minimum amount. hardship requests and grants those reductions more readily. For tax refund offsets, the process is less formal, and approvals are less common.

Enter a Repayment Agreement

Within 20 days of the notice date, you can request a written repayment agreement to avoid the offset entirely — without proving hardship. The Department or guaranty agency provides a repayment schedule, and you must make the first payment by the later of:

• 7 days after the decision date (if you also requested a review), or
• 65 days after the notice date (if you did not request a review or records inspection), or
• 15 days after the Department provided your loan records (if you requested them)

By entering a repayment agreement, you waive the right to future review of issues related to the original debt. The regulations require "reasonable" terms based on your financial circumstances — but the Department sets them.

After the Offset: Post-Offset Review

If the offset has already happened, you can still request a review. The Department has indicated it follows the same pre-offset hearing procedure for post-offset requests. The difference: the money has already been taken, and the offset is not paused while the review is pending. Whether the Department or guaranty agencies will follow through on post-offset requests is an open question. Filing the request still creates an administrative record, which matters if you have strong grounds and may need to escalate.

A Common Point of Confusion: Offset Bypass Refunds (OBR)

Offset Bypass Refunds (OBR) are sometimes confused with the hardship reduction process described above. An OBR is an IRS mechanism that allows taxpayers experiencing economic hardship to receive part of their refund even when they owe a federal tax debt. OBRs apply to IRS tax debts — not to student loan debts collected through TOP. If your refund is being offset for defaulted student loans, your hardship request goes to the Department of Education, not the IRS. Related: What Is the Default Resolution Group?

How to Stop Student Loan Offsets Permanently

A hardship reduction can pause or reduce an offset, but it does not resolve the underlying default. The two paths to permanently end offsets both require exiting default. Consolidation. A Direct Consolidation Loan replaces your defaulted loans with a new loan in good standing. Once processed, collections stop and your name is removed from the TOP database. Consolidation can be completed in weeks. It does not remove the record of default from your credit history. Rehabilitation. Loan rehabilitation requires nine qualifying monthly payments over a ten-month period. After completion, the default notation is removed from your credit report — the only default exit that clears the credit record. Once you're out of default through either path, offsets stop. In some cases, refund amounts intercepted during the process may be recoverable. Related: Student Loan Rehabilitation vs. Consolidation