Millions of Student Loan Borrowers in Default Risk Losing Out on 2026 Tax Refund Benefits

The projected 2026 tax refund season, touted by the Trump administration as the largest in history, may exclude millions of borrowers currently in default on federal student loans. Those individuals face offsetting actions that could reduce or eliminate their expected refunds.

The 2026 tax season is expected to deliver record refund amounts, with projections indicating an average refund of $3,800 per filer—up from $3,450 in 2024. This surge is attributed to expanded tax credits, including the enhanced Child Tax Credit and expanded Earned Income Tax Credit. However, this financial benefit is not universally accessible. Individuals with federal student loans in default—estimated at 7.2 million borrowers—are subject to the Treasury Department’s offset program. Under this mechanism, the government can apply a portion or all of a taxpayer’s refund toward delinquent student debt. In recent years, over 2.4 million refunds were intercepted in 2023 alone, with amounts totaling $7.8 billion in offsets. The impact is particularly acute for low- and middle-income filers, many of whom rely on refunds for essential expenses. Among borrowers in default, over 58% have income below $50,000 annually, making the loss of a refund a significant financial setback. Even partial offsets can delay or prevent access to funds needed for housing, utilities, or child care. The situation underscores the intersection of tax policy and federal debt enforcement. While the administration promotes the tax season as a relief measure, the default penalty system may inadvertently penalize those already facing financial instability.