Looking for Experts on Federally subsidized loan rehabilitation and holds on tax refunds... I am just starting a loan rehab program, but have not filed my 2006 OR 2007 tax returns yet because the Federal Government has a hold on any tax refunds to be used against my school loans. Objective: Minimize handing over my tax refunds (which will total about $7k) Question 1: Is there only one "hold" order? Example - If I file my 2006 taxes, will it satisfy all hold(s) by keeping my returns, then I can file my 2007 taxes and receive that refund, including the tax refund checks coming as part of the economic stimulus package later this Spring? OR Is there a separate hold each year, attached to each year's tax return? Question 2: Is there any benefit to me NOT filing until my loans are rehabbed in 9 months, at which time I'm told the hold(s) will be removed? Thanks much for your help!
If you're worried about them taking your tax refunds, fill out a new W-9 to change your witholdings so they don't take out as much money in each paycheck. If you search online, there are calculators that can help estimate how much each change will affect your witholding. For example, I have 4 exemptions (Myself + my family) but I have my taxes witheld at the rate for 12 exemptions because I have a lot of deductions. So this reduces the amount of money they withold from each paycheck. As it is, I'm still witholding too much (i.e. I get a large refund), but you could fiddle with this to put more money into your pocket now and less in the governments. It won't help with the past, but it might help you out going forward. Just a thought.
Also, if you don't file your tax refunds for several consecutive years (even if you're owed a refund), you'll be subject to backup withholding. I'm not even 100% sure what that is, but it almost happened to me, so I finally just filed old returns.
If you don't file the returns within three years from the time they are due, you forfeit all rights to the refunds, and it won't go toward your student loans, either. The government will simply keep it, and can charge you with failure to file a return. They can also look at what was sent to them as income (W-2s, 1099s, etc) and compute your tax without considering any deductions or anything. They will then send you a deficiency notice for that amount. As DamnFool mentioned, they can also subject you to backup withholding, which means that any accounts you have which pay interest or dividends, part of those payments is withheld for taxes. Which means the money isn't reinvested and can hurt greatly in the long run. You're going to pay the loans anyway. If you wait until you've paid to file the tax return, you don't have the money until then. Why not just file, let them apply the refund to the student loans, have them paid, and be done with it. You can then keep the amount you've been paying and invest it or do something else with it. Seems like you're cutting off your nose to spite your face.
Excellent! Thanks ccbob. For some reason I didn't think of this. I will do so immediately. However, if my loans are completely rehabbed by this time next year, they wouldn't be taking any money then anyhow. So, even though it immediately offsets the cash flow to some degree, I still have the same issue where my refund(s) is going to the loan instead of my pocket. The problem: I am paying nearly $1000/month to rehab (15% of my so-called disposable pay - which the Feds used atrocious math to arrive at) . So it would be helpful to have my refunds to help with that burden. If the government takes my refund, how do I know if it will go to the principle, or will it just pay off interest or the so-called $8k of "collection costs" first?
DF, If the government takes my refund(s), how do I know if it will go to the principle, or will it just pay off interest or the so-called $8k of "collection costs" first? As I just mentioned above; I am paying nearly $1000/month to rehab. So it would be helpful to have my refunds to help with that burden. If it were truely paying down just the principle, it may be worth the extreme financial burden for 8 months.
Thanks Hedwig for the details around the 3 year forfeiture rights. So hopefully more info may help you help me... I owe around $80k in loans, collections costs, and interest. Interest continues to accrue. I am paying nearly $1k/month now for the next 8 months to rehab and keep from garnishment. I'm doing everything I can to keep from losing my house by paying the $1k/month. The Feds arrived at this amount by looking at my income on paper then comparing my housing, transportation, etc costs with the average in my county. Then they took the county average in every case and used it to arrive at my discretionary income, instead of my actual costs which I sent them details, bills, contacts on proving they were all real. For example, by mortgage (PITI) is around $2600/month, but they only gave me credit for the county average of $1400/month, adding the difference of $1200/month to my 'discretionary income'. So any refunds will help me pay this ridiculous rehab amount while keeping me from foreclosure. I am trying to minimize how much the Feds take at one time. So back to my original questions (hopefully easier to answer with the additional details I provided?) Question 1: Is there only one "hold" order? Example - If I file my 2006 taxes, will it satisfy all hold(s) by keeping my returns, then I can later file my 2007 taxes and receive that refund, including the tax refund checks coming as part of the economic stimulus package later this Spring? OR Is there a separate hold attached to each year's tax return? Question 2: Is there any benefit to me NOT filing until my loans are rehabbed in 9 months, at which time I'm told the hold(s) will be removed? Thanks for your help.
Hey Mike, just to let you know man, I am in the same boat. Just got off the phone with DCS(transferred from American Student ast via sallie mae) and they told me about the Loan Rehab program. They also informed me that just by chance that my case is scheduled for review on 2/19and that I will subject to the tax off-set program as well as wage garnishment. I am not sure if this just a scare tactic to get me into the rehab program or not. I didn't disclose any personal info that I didn't have to and told her I would get back to her becuase I wanted to consult this board. My question is whether or not this is the best route to take??? Or, is the other ways to solve the problem. I know I owe the money, and hindsight being 20/20, I never would have defaulted in the first place, but all I want to do now is take care of it in the most efficient and practical manner. My monthly obligations would preclude me from being able to handle a 15% paycut!!! There seems to be one bailout(homeowners, CDO's, bond insurers, etc.) or another occuring everyday, to bad there isn't one out there for stupid kids that made a mistake and now are going to paying for it for many years to come.
The bad news is that, unlike credit card debt, your wages can be garnished for a student loan without going to court for a judgment. I would suggest that you try to get into the rehab program pronto, or they may very well garnish your wages. And, as with cma, they have standard amounts that are used to determine how much of your wages can be garnished. Once your employer is served with the garnishment order, he has no choice but to begin the garnishment.
Well, if student loans work anything like federal income tax, there is no limit to the number of holds. I have a payment plan to satisfy my 2003 taxes, so each year, rather than receiving a tax refund, the amount that I'm owed is applied to my outstanding balance from '03.
katz, I can tell you exactly what will happen, since I'm about 3 months ahead of you on this - and you are correct, we are in the same boat; PART 1 Once the Feds turn it over to a collection agency, you have no choice but to work with that agency to resolve. That agency will operate differently for Fed loans than it would for collecting credit card debt, medical bills, etc., They really only act as a conduit for the Feds to communicate, arrange payments, rehab, or garnish the accounts. Whether scare tactic or not, as Hedwig said, they don't require a court order to garnish, and Federal debt cannot be included in bankruptcy. I've pushed their limits a couple of times now, and realize I can't do it any longer: The 'assigned' collection agency for my loan (to remain nameless on this board) has harrassed me and family members for months. I received several letters from the Dept of Education stating a pending garnishment unless I took action within a certain amount of days (I think it was 30?). I immediately called the Dept of Education, but they told me (3 times) that I have to work with thier appointed collection agency. I waited 45 days before doing that, after receiving more letters. I called the collection agency and they said either pay up at 15% of after-tax pay, or submit all financial statements to a Dept of Ed board to claim financial harship to lower the 15% to less. I faxed everything in (shuddering with fear since all my financial info was now in the hands of a well-known to this board collection agency that could be appropriated for other things). I got a letter 2 weeks later stating (summarizing here) I claimed too much in my county for housing, childcare, utilities, etc, EVEN THOUGH I GAVE 3RD PARTY STATEMENTS AND BILLS TO PROVE IT. So according to them I should be paying about $1500 less in expenses than I do. -They gave me 15 days from the date of the letter to respond...
[Part 2] So I waited 22 days because I was so pissed! I called the collection agency and they said an order for garnishment was either in their 'oubox' or in the mail already. Threat? I don't know, but I do know I can't take a chance with my employer... I did end up being transferred to a much more knowledgable supervisor who is actually the one that gave me the option to rehab (up til now it was just pay or we garnish, and pay another $300 more to qualify for a rehab) She explained my 3 options: 1. ignore everything and be garnished 15% ($1000) 2. immediately arrange to pay the 15% ($1000) for the next 8 months until the loan is rehabbed 3. Do number 2 first, then send ANOTHER letter to the Dept of Education to plead my case to lower the payments. I had to give some info over the phone to finalize the payment arrangements, and they are sending me a form I have to sign and fax back, while simultaneously sending a payment. In summary, I've pushed the time limits 3 times and its taken extra work to evade garnishment, plus they continued to hound my family until I worked with them. If you can make a financial hardship case to the Federal board, then they MAY lower the amount you need to pay. The one thing I haven't done yet is consult an attorney, who may be able to argue for a lower payment and defer the garnishment order, but I don't know for sure. The goal for both of us is to get these loans rehabbed, then we can refinance or defer or get much lower payments. Hope that was helpful... Let me know if you have any other specific questions - I'd like to hear more about your situation.
So thats what I was afraid of. Until I can get my school loans rehabbed and in good standing, they will continue to submit holds. That being the case, I may just file one return and wait for the rest until my loans are rehabbed. I have already changed my tax withholding, to keep more money in my pocket - thanks for your help with that one!
If you have a refund, there is no penalty for filing late. Penalties are calculated on the amount due. Since there is no amount due (as in my case), there is no penalty. If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest. There are three separate penalties:Failure to File Penalty Failure to Pay Penalty InterestEach is calculated differently...Failure to File Penalty. This is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. Failure to Pay Penalty. This is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. Interest. This is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayments of tax is 6% per year. I'm assuming this is for the 3 years or less scenario mentioned in the second post above.
Correct. As long as you are getting a refund there is no penalty. However, if you don't file in a certain time (not sure if it's 18 months or two years) they often impose backup withholding, meaning that they notify all of your banks and investment accounts (whoever has been reporting interest or dividend payments) to start withholding tax from those payments. The problem is that if you are reinvesting the gains (dividends, interest, etc) then the amount you are reinvesting is decreased by (I think) 31% and you are losing the benefit of compound interest on that money. Not a good thing.
The process you guys are going through to rehab your loans is totally different from what I did. I never had to submit anything at all, and the CA simply asked me what I could afford to pay. This was right before garnishment was about to take effect too. However, it took me 12 months to rehab intead of 8 or 9, as it sounds like is the case for you guys.
I'm about to enter into the student loan fray. I owe about $75K with payments of $590 per month due to begin (last) December (2007.) My understanding is that nothing will go to collections for 270 days. After that, they can get an immediate garnishment for 15%. Unlike others, I can afford a 15% after taxes garnishment which will turn out to be close to my payment. On the other hand, I've also been trying to work with many other creditors on delinquent accounts, and most have agreed to new terms with substantially lower interest and five-year payoff plans. Since my state only allows a maximum of garnishment of 25%, I'm wondering if I should encourage the student loan folks to garnish my wages to gain leverage against other creditors who might have a judgment. 10% of my after-tax wages can't sound good to other creditors seeking amounts of $10K - $15K. My state is also a 90 day garnishment state (execept for child support, federal debt, and criminal restitution), so creditors who can't be paid in full have to resubmit a garnishment order and get back at the end of the line. Just thinking out loud here. Other than that, I'm impressed by how many of the big national creditors have agreed to work with me. Well, the exception is CrapOne .
Hey all, I just wanted to add that though I am not sure how to answer your questions, it does appear that if your 2007 return is not filed at some point this year, you will not get the $600 from the stimulus package. According to http://www.irs.gov/newsroom/article/0,,id=179094,00.html, located at IRS.gov, they will not send out stimulus payment checks after December 31, 2008. And since the stimulus payment is based on your 2007 return, it should be filed before then in order for you to get your check. The stimulus money is also subject to offset, so that there is a balance that it seems that you must strike. Hopefully, this information helps just a bit. A
