Why You Should Apply for a Student Loan Refund Before Forgiveness
By now, you know that the Joe Biden administration is pushing ahead with a plan that would allow millions of Americans to receive up to $10,000 in federal student loan forgiveness (and up to $20,000 if they receive Pell grants ). But if you’re among those who continued to pay on these loans during the pandemic, when the payment freeze was put in place, you might be wondering if you can recoup any of that money. Although it was always possible to return these payments , the upcoming forgiveness changed something.
Getting reimbursed for federal student loan payments
If you’ve made payments since March 2020, when they became voluntary, you may be eligible for a refund. The federal student aid website states that you should contact your loan officer directly to request them. And now you should definitely do this before you apply for loan forgiveness, especially if you’re still under that $10,000 (or $20,000) minimum once you get your money back.
According to CNBC , the refund will be received in cash, so if you’ve paid $3,000 since March 2020 and still have $3,000 left, your balance will go back to $6,000. According to PBS , refunds should happen automatically for anyone whose payments due to the pandemic have caused their balance to fall below the maximum forgiveness amount. Check your balance here ; if your balance is well above the threshold for full forgiveness, it may not be worth asking for a refund that you will have to pay again in the future.
If you didn’t receive an automatic refund, or if you’re not sure if you received one, call your service team now to find out if your refund will be automatic or if there’s something else you need to do.
What if you paid off all your student loans during the pandemic?
According to PBS, while refunds for people whose total balance falls below the maximum forgiveness amount are expected to be automatic, the refund will not be automatic if you paid off the whole damn thing sometime between March 2020 and now. You will be eligible for loan forgiveness, but first you need to get your money back, which will temporarily restore your balance. Confirm your right to forgiveness before requesting a refund. Keep in mind that only payments made since the start of the pandemic are eligible for a refund.
Should I request a refund now?
However, you can wait a bit with all this. While we have more clarity on how this will work than when the easing was announced, there may still be more details on how payments made during the freeze will affect the overall balance sheet, as interest has also not been capitalized in pause time in most cases. .
Experts caution against requesting a refund until even more details are available on how they will work with the plan. What you should do in the interim is to call your particular loan service and find out what they will need to process your refund when the time comes and how they recommend moving forward. They will likely need to record your payments since March 2020, broken down by creditor, amount paid, and payment date.
Use this time to put it all together so that when you’re ready to ask for a refund and eventually ask for forgiveness, you’ll have everything you need.