Yes, not the least of which reason is that they are institutional and IRS generally works with semi-governmental and governmental creditrs. The key is to create a withholding level that will yield positive but nearly zero refunds every year because (1) they can be seized, and (2) you don't get interest on money that the government holds before the tax return due date.
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Absolutely 100% yes they can.
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The simple answer is yes. But the more interesting thing is that they have not done so in the past? Have you gone a number of years without significant income? Is this your first refund in a number of years?
I don't know a lot about US student loans, but I throw this question out there. Is there a statute of limitations on collection? We don't know from the facts whether the statute would have been extended for some reason. If there is a statute, and it had run, presumably the IRS could still not be faulted for garnishing, but could the TP then ask for repayment against the DoE? That actually may be tricky since the expiry of the statute does not mean the debt no longer exists, but rather than they can no longer sue to collect. If by happenstance the IRS gives them a chunk of your money then presumably they are lucky to settle a debt the collection of which was statute barred.
At a deeper level, and we all understand that these mechanisms are hard-wired statutorily, garnishing a tax refund is a very different thing than a private creditor garnishing a paycheck (for example) which comes after judgement. Your tax refund is not income, it is not someone paying you what had been THEIR money in exchange for something you did for them. IT IS YOUR MONEY WHETHER IT IS IN THE POCKET OF IRS OR IN YOUR OWN POCKET. They overwithheld because of their own blunt withholding rules and now they are using a garnishment procedure to effect what should be a collections procedure. Put another way, if you disputed a private debt and refused to pay, you would say to the alleged creditor sue me before the statute runs. In the case of IRS / DoE they can say yeah, not so much. We would prefer instead to compel you through our blunt withholding rules to pay your money into an account over which we have a statutory lien or garnishment rights without ever giving you the chance to dispute.
Sorry, we don't know if you have a legitimate disagreement over your student loan or not. Maybe I should have raised the above with my therapist...