NEW YORK (AP) — When President Joe Biden announced a plan to forgive student loan debt, many borrowers who kept making payments during the pandemic wondered if they made the right choice.
Borrowers who paid off their debt during the pandemic freeze that began in March 2020 can actually get a refund — and then apply for forgiveness — but the process isn’t always clear.
If you think you’re eligible, here’s what you need to know:
Who is eligible for refund?
Borrowers who have qualified federal student loans and have made voluntary payments since March 13, 2020 can receive a refund, according to the Department of Education.
For some, that refund is automatic. You can get a refund without applying if your payments bring your loan balance below the maximum loan 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 pays $100 a month for a 10-month term and their balance is now $8,000, that $1,000 will be automatically refunded. Then they can apply to have their remaining loan waived.
However, if a borrower has paid throughout the pandemic and still owes $14,000, they won’t get an automatic refund. However, they can apply to have $10,000 of that debt eliminated.
Another group that should apply for a refund is those who paid off their loan balance in full during the pandemic. If that’s you, you may be eligible for debt forgiveness, but you must 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 all back during the freeze and was eligible for up to $10,000 in forgiveness, they would apply for a $5,000 refund and then apply to have their debt forgiven. .
“Borrowers who have repaid their loans during the pause should first request a refund and then request a cancellation,” said an Education Department spokesperson.
Refunds are not available for private student loans.
Eligible Federal Student Loans:
– Direct Loans (Default and Non-Default)
-Federal Family Education Loan (FFEL) Program Loans ED (Default and Non-Default)
– Federal Perkins Loans ED (Default and Non-Default)
-Defaulted FFEL Program loans are not covered by ED
If you’re not sure which loan you have, visit your dashboard at studentaid.gov and find the “My Loan Services” section. If you cannot access your dashboard, you can call the Office of Federal Student Aid at 1-800-433-3243 to ask for loan service information.
How can I apply for a refund?
Borrowers who want a specific amount refunded can apply by calling their loan service provider. Currently, refunds are only done over the phone and not through any website or email.
When the Biden administration announced the pardon, loan servicers were inundated with calls. But many borrowers now say they don’t have to wait long when calling.
“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 in the first week of September. At first, she thought the servant was trying to prevent her from making the request. But after confirming she wanted to continue, she was told she would see her return in a month.
Sierra Tibbs, 47, of Casselberry, Florida, had a similar experience. The entire phone call with her loan servicer took about 20 minutes.
Tibbs applied for a refund after seeing a video online that said she could get a refund of the money she paid during the pandemic.
If you don’t know who serviced your loan or the servicer changed during the pandemic, visit your Student Aid account dashboard and scroll to “My Loan Services” or call 1-800-433-3243.
Before calling your loan provider to request your refund, you need to know your account number and the amount you want to refund.
– Loan Servicer Phone Numbers:
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 deaf or hard of hearing)
How does 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, says Catherine Welbeck, a civil rights attorney with the Student Borrower Protection Center.
That amount is still eligible for cancellation and can be removed after you apply for forgiveness.
You are eligible for debt relief if you have an individual annual federal income of $125,000 or less than $250,000 in 2020 or 2021 if you are married or the head of a household. The application opens in early October and you can apply until December 31, 2023.
It is unclear when borrowers will see debt relief. So far, the plan only states that borrowers will be notified by their loan servicer when their loan is forgiven. The pardon is also likely to be delayed if the Biden administration faces legal challenges.
Laura Baum, 30, a Chicago resident, paid $5,000 during a payment freeze on her $15,000 outstanding debt. She is eligible for a $20,000 waiver because she was a Pell Grant recipient while an undergraduate. In early September, Baum called her loan servicer and asked for a refund.
But because of the uncertainty, she plans to save the money until the Department of Education confirms her loan is canceled.
“I’m going to keep paying that back until I see absolutely $0 in my student loans,” Baum said.
When is the deadline to apply?
The deadline to apply for a refund is December 31, 2023. However, Welbeck recommends applying for a refund before you apply for debt forgiveness.
“If you apply early, you can process a refund to get your money back, and then that balance in your account will be canceled,” Welbeck said.
The application process for loan forgiveness is expected to take four to six weeks.
Education Department provides a subscription page where you can sign up to be notified when the application opens.
How much refund can I get?
According to the Department of Education, you can get a refund for the entire amount you paid during the payment freeze. However, you can choose a lower amount.
During the pandemic, you can choose this option if you have paid enough to get your loan below the maximum forgiveness. You can get a partial refund and then apply to write off the rest of your debt.
Say you had $15,000 worth of debt left at the start of the payment freeze and have since paid off $8,000, but qualify for $10,000 in debt relief. You can decide to ask for a refund of just $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 within six to 12 weeks of requesting it. But you may want to double check with your loan servicer.
McParland’s loan servicer told her she should see her repayments 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 treated as taxable income. Welbeck recommends borrowers check with financial advisors from their home state.
Some states, such as Indiana, have already said they will tax debt relief for people who have canceled their student loans. Procedures vary from state to state.
Will a chargeback affect my credit score?
Because the Department of Education has not yet announced how cancellations or refunds will be reported to the credit bureaus, Welbeck said it’s still uncertain whether the amounts will affect borrowers’ credit scores.
Do I start paying again when the payment freeze ends?
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-based repayment plans before the payment freeze ends.
Income-based repayment 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-based repayment plans here.
You can find all of AP’s financial wellness coverage at https://apnews.com/hub/financial-wellness.
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