NEW YORK (AP) – When President Joe Biden announced plans to forgo student loan debt, many borrowers who kept making payments during the pandemic wondered whether they had made the right choice.
Borrowers who paid off their loans during the pandemic freeze that began in March 2020 can actually get a refund – and then apply for forgiveness – but the process for doing so isn’t always clear.
If you think you’re eligible, here’s what you need to know:
Who is eligible for refund?
According to the Department of Education, borrowers holding eligible federal student loans and making voluntary payments through March 13, 2020, can get a refund.
For some people, that refund will be automatic. You can get a refund without applying if your payments bring 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 in their studentaid.gov account.
For example, if a borrower paid $100 per month for 10 months after the pandemic and their balance is now $8,000, that $1,000 will be automatically refunded. They can then apply to have the rest of their loan forgiven.
But if a borrower made a payment during the pandemic and still owes $14,000, they won’t get an automatic refund. However, they can apply to erase $10,000 of that debt.
Another group of people who have to apply for refund are those who have fully paid their loan balance during the pandemic. If that’s you, you’re eligible for loan forgiveness, but you’ll need to request a refund before you can apply for debt relief. Borrowers must confirm their eligibility for the loan forgiveness program before requesting a refund.
For example, if a borrower had $5,000 in debt at the start of the pandemic and paid it back during the freeze, but is eligible for up to $10,000 in forgiveness, they would apply for a $5,000 refund. , then will apply to get your loan forgiven. ,
“Borrowers who have paid off their loans during the lockdown must first request a refund, then request a cancellation,” said a spokesman for the Education Department.
Refunds are not available for private student loans.
Qualified federal student loans:
Direct loans (default and non-default)
Federal Family Education Loan (FFEL) Program Loan (Default & Non-Default) Held by ED
Loans held by Federal Perkins ED (Default and Non-Default)
—The default FFEL program is not with the loan ED
If you’re not sure which loan you have, go to your dashboard at studentaid.gov and find the “My Loan Servicers” section. If you cannot access your dashboard, you can call the Federal Student Aid Office at 1-800-433-3243 to ask for loan servicer information.
How can I apply for refund?
Borrowers who wish to refund a specific amount can apply by calling their loan service provider. At present, refunds are being done only through phone and not through any website or email.
When the Biden administration announced the pardon, loan servicers filled themselves with calls. But many borrowers now say they are not waiting long enough to 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 pay freeze.
McParland requested the refund in the first week of September. At first, he realized that the servitor tried to stop him from making the request. But after confirming that she wanted to move on, she was told she would see her refund in about a month.
Sierra Tibbs, 47, of Castleberry, Florida, had a similar experience. The entire phone call with his loan servicer took about 20 minutes.
Tibbs applied for a refund after watching a video online that showed she could get back the money she paid for during the pandemic.
If you are unsure who is servicing your loan, or if the servicer has changed during the pandemic, go to your Student Aid account dashboard and scroll to “My loan servicers” or 1-800-433-3243 Call on
Before calling your loan provider to request your refund, you will need to know your account number and the amount you wish to return.
Phone numbers of loan servants:
FedLoan Servicing: 1-800-699-2908
Great Lakes Educational Loan Services, Inc.: 1-800-236-4300
OSLA Servicing: 1-866-264-9762
Default resolution group: 1-800-621-3115 (1-877-825-9923 for the deaf or hard of hearing)
How will the refund work—and when will my debt 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 attorney at the Student Borrower Protection Center.
That amount is still eligible for cancellation and may be liquidated after you have applied for forgiveness.
You are eligible for debt relief if your annual federal income is less than $125,000 or if you are married or head of household in 2020 or 2021. Applications are expected to open in early October and you can apply by December 31. , 2023.
It is not clear when borrowers will get debt relief. As of now, the scheme has only mentioned that borrowers will be notified by their loan servicer when their loan is waived. There is also a possibility that the apology could be delayed if the Biden administration faces legal challenges.
Laura Baum, 30, of Chicago, paid off $5,000 while paying off the remaining $15,000 in debt. She is eligible for a $20,000 cancellation for being a Pell grant recipient since she was an undergraduate. In early September, Baum called his loan servicer and asked for a refund.
But because of the uncertainty, she plans to save that money until the Department of Education confirms that her loan has been canceled.
“I’m going to put that refund on hold until I see fully $0 in my student loans,” Baum said.
When is the deadline to apply?
The last date to apply for refund is December 31, 2023. However, Welbeck recommends that you apply for a refund before applying for loan forgiveness.
“If you apply first, you can process a refund to get your money back, and then your account balance is cancelled,” Welbeck said.
The application process for loan waiver is expected to take four to six weeks.
The Department of Education is offering a membership page where you can sign up to be notified when the application is open.
How much refund can I get?
According to the Department of Education, you can get a refund for the full amount you paid during the payment freeze. However, you can choose a lower amount.
You can choose this option if, during the pandemic, you have made enough payments to reduce your loan amount below the maximum amount of forgiveness. You can get a partial refund, then apply to wipe out the rest of your loan.
Let’s say you had a loan balance of $15,000 at the beginning of the payment freeze and you’ve paid $8,000 since then, but qualify for $10,000 in debt relief. You may decide to ask for a refund of only $3,000. Then, your loan balance will be exactly $10,000, and you can apply for maximum loan forgiveness.
When will I get my refund?
According to the Department of Education, borrowers should expect to receive their refund six to 12 weeks after making the request. But you might want to double check with your loan servicer.
McParland’s loan servicer told her that she should see her refund amount in 30 to 45 business days, but Baum was told it would take 60 to 70 business days to see her money back in her bank account.
Is the refund taxable income?
It is not yet clear whether the refunded money will be considered taxable income. Welbeck recommends that borrowers check with financial advisors in their own state.
Some states, such as Indiana, have already said they will tax debt relief for people whose student loans have been canceled. Policies vary from state to state.
Does a refund affect my credit score?
Since the Department of Education has yet to announce how cancellations or refunds will be reported to credit bureaus, it is still uncertain whether these amounts will affect borrowers’ credit scores, Welbeck said.
Should I start paying again when the payment freeze expires?
The pandemic payment freeze is set 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 end of the payment freeze.
Income-driven repayment plans allow you to set an affordable repayment amount based on income and family size.
You can find out more about the four types of income-driven repayment plans here.
You can find all of AP’s financial wellness coverage at https://apnews.com/hub/financial-wellness.
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