In a recent interview with Jay Fleischman, a lawyer and host of the Student Loan Show, Jay shared a strategy for repaying student loans: Tax Refund Offsets.
A Tax Refund Offset is where the federal government confiscates your tax refund check and applies it to your student loans.
Jay said people do that, but it’s not a good idea.
First of all, they won’t confiscate a tax refund unless there is a judgement against you. That’s not a good thing!
Second, the collector has the right by federal regulation to recoup collection costs (generally 24% of principle and interest combined) based on what the debt collector obtains.
So, effectively you are paying 24% more for your student loans.
If you were to go through rehabilitation of the loan instead, which involves paying 9 monthly payments over a 10 month period of time, your loan comes out of default.
Learn more by listening to the 5 Reasons You Should Never Default on Student Loans