NEW YORK (AP) — When President Joe Biden announced a plan to forgive student loan debt, many borrowers who kept paying through the pandemic wondered if they had made the right decision.
Borrowers who paid off their debt during a pandemic freeze that began in March 2020 can, in fact, get a refund and then apply for forgiveness, but the process for doing so hasn’t always been clear.
If you think you’re eligible, here’s what you need to know:
Who is eligible for a refund?
Borrowers who have eligible federal student loans and have made voluntary payments since March 13, 2020, can get a refund, according to the Department of Education.
For some people, that refund will be automatic. You can get a refund without filing if your payments brought your loan balance below the maximum debt relief amount: $10,000 for all borrowers and $20,000 for Pell Grant recipients. Borrowers can check their balance on their studentaid.gov account.
For example, if a borrower paid $100 a month for 10 months of the pandemic and their balance is now $8,000, that $1,000 will be automatically repaid. They can then request forgiveness of the rest of their debt.
But if a borrower paid during the pandemic and still owes $14,000, they won’t receive an automatic refund. However, they can request that $10,000 of that debt be discharged.
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Another group of people who have to apply for a refund are those who paid off their loan balance in full during the pandemic. If that’s you, you’re eligible for loan forgiveness, but you’ll need to request a refund before applying for debt relief. Borrowers must confirm their eligibility for the loan forgiveness program before requesting a refund.
For example, if a borrower owed $5,000 in debt at the start of the pandemic and paid it off in full during the freeze, but is eligible for up to $10,000 for forgiveness, they would request a $5,000 refund and then request forgiveness of their debt. .
“Borrowers who paid off their loans during the pause will first need to apply for a refund and then apply for cancellation,” a Department of Education spokesman said.
Repayment is not available for private student loans.
Eligible Federal Student Loans:
- Direct loans (delinquent and non-delinquent)
- Federal Family Education Loan (FFEL) Program Loans Held by ED (Defaulted and Non-Defaulted)
- Federal Perkins Loans Held by ED (Defaulted and Non-Defaulted)
- Defaulted FFEL Program Loans Not Withheld by ED
- HEAL loans in default
If you’re not sure which loan you have, visit your dashboard at studentaid.gov and look for the “my loan servicers” section. If you can’t access your dashboard, you can call the Federal Student Aid office at 1-800-433-3243 to request loan servicer information.
How can I request a refund?
Borrowers who want a specific amount to be repaid can request it by calling their loan servicer. At this time, refunds are only made over the phone and not through any website or email.
When the Biden Administration announced the forgiveness, loan servicers were inundated with calls. But many borrowers now say they don’t expect much when they call.
“I was on hold for about five minutes,” said Megan McParland of New Jersey, who graduated in 2018 and made several payments during the payment freeze.
McParland requested a refund the first week of September. At first, she felt that her manager tried to dissuade her from applying. But after confirming that she wanted to continue, she was told that she would see a refund from her in about a month.
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Sierra Tibbs, a 47-year-old resident of Casselberry, Florida, had a similar experience. The entire phone call with her loan servicer took about 20 minutes.
Tibbs requested a refund after watching a video online informing him that he could get back the money he paid during the pandemic.
If you’re not sure who services your loan, or the servicer changed during the pandemic, visit your student aid account dashboard and scroll to “my loan servicers” or call 1-800-433-3243 .
Before you call your loan provider to request your refund, you need to know your account number and the amount you want to repay.
Loan servicer phone numbers:
How will the repayment work and when will my loans be forgiven?
When you request a refund, the amount you paid during the payment freeze will be added back to your student loan balance, said Katherine Welbeck, a civil rights adviser with the Center for Student Borrower Protection.
That amount is still eligible for cancellation and can be removed after you apply for forgiveness.
You are eligible for debt relief if you had an annual federal income of less than $125,000 individually or $250,000 if married or head of household in 2020 or 2021. The application is expected to open in early October and you can apply until December 31, 2023.
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It is unclear when borrowers will see debt relief. So far, the plan only mentions that the loan servicer will notify borrowers when their debt is forgiven. There is also the possibility that the pardon could be delayed if the Biden administration faces legal challenges.
Laura Baum, a 30-year-old Chicago resident, paid $5,000 during the payment freeze on her remaining $15,000 in debt. She is eligible to have $20,000 written off since she received a Pell Grant when she was a student. In early September, Baum called her loan servicer and requested a refund.
But because of the uncertainty, she plans to save that money until the Department of Education confirms that her debt has been paid off.
“I’m going to hold that refund until I see absolutely $0 on my student loans,” Baum said.
When is the deadline to apply?
The deadline to request a refund is December 31, 2023. However, Welbeck recommends that you request a refund before applying for debt forgiveness.
“If you apply first, you can process the refund to get your money back and then that balance in your account is canceled,” Welbeck said.
The loan forgiveness application process is expected to take four to six weeks.
The Department of Education offers a subscription page where you can sign up to be notified when the app is open.
How much can I be reimbursed?
You can get a refund for the full amount you paid during the payment freeze, according to the Department of Education. However, you can choose a smaller amount.
You may choose this option if, during the pandemic, you paid enough to bring your debt below the maximum forgiveness amount. You can get a partial refund and then have the remaining debt discharged.
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Let’s say you had $15,000 remaining in debt at the start of the payment freeze and have since paid $8,000, but qualify for $10,000 in debt relief. You may decide to request a refund of only $3,000. Your debt balance will then be exactly $10,000 and you will be eligible for maximum loan forgiveness.
When will I receive my refund?
Borrowers should expect to receive their refund six to 12 weeks after applying, according to the Department of Education. But you may want to check with your loan servicer.
McParland’s loan servicer told him he should see the amount repaid in 30 to 45 business days, but Baum was told it would take 60 to 70 business days to see his money back in his bank account.
Is the refund taxable income?
It is not yet clear if the refunded money will be considered taxable income. Welbeck encourages borrowers to consult with financial advisors in their own state.
Some states, like Indiana, have already said they will tax debt relief for people who have their student loans discharged. Policies vary from state to state.
Does the refund affect my credit score?
Since the Department of Education has not yet announced how the charge-off or refunds will be reported to credit reporting agencies, it’s not yet clear whether these amounts will affect borrowers’ credit scores, Welbeck said.
Do I need to start paying again when the payment freeze ends?
The pandemic payment freeze is scheduled to end on December 31. If you haven’t seen debt relief by then, you’re still expected to start making payments. Welbeck recommends that borrowers enroll in income-driven repayment plans before the payment freeze ends.
Income-based payment plans allow you to set an affordable payment amount based on income and family size.
You can find more information about the four types of income-driven repayment plans here.