Why You Should Apply for a Student Loan Refund Before Forgiveness

By now you know that President Joe Biden’s administration is moving forward with a plan that will enable millions of Americans to get up to $10,000 in federal student loan forgiveness (and up to $20,000 if they received Pell Grants). But if you’re among those who continued paying on those loans during the pandemic, when a payment freeze was put in place, you might be wondering whether you can recoup any of that money. While it’s always been possible to get a refund on those payments, the impending forgiveness has changed a few things.

Getting a refund on federal student loan payments

If you made payments since March 2020, when making them became voluntary, you can get a refund. The federal student aid website maintains that you should contact your loan servicer directly to request those. And now, you should be sure to should do this before applying for loan forgiveness, especially if you’ll still be under that $10,000 (or $20,000) minimum once you get your money back.

The refund will come to you in cash, according to CNBC, so if you have paid $3,000 since March 2020 and still have $3,000 left to go, your balance will go back up to $6,000. According to PBS, refunds are supposed to happen automatically for anyone whose pandemic payments resulted in their balance ending up under the maximum amount of forgiveness. Check your balance here; if your balance is significantly over the threshold for total forgiveness, it may not be worth requesting back money that you’ll have to pay again in the future.

In the event you don’t get an automatic refund or you’re unclear whether you did, call your servicer now to inquire whether your refund will be automatic or if there’s anything 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, refunds are not automatic if you paid off the whole damn thing sometime between March 2020 and now. You’ll be eligible for loan forgiveness, but first you need to get your money back, which will restore your balance temporarily. Confirm your eligibility for forgiveness before requesting your refund. Bear in mind that only payments made since the onset of the pandemic are eligible for refunds.

Should you request a refund now?

You might want to hold off a bit on doing all that, though. While we have more clarity on how this will work than we did when the relief was announced, more details may still come out about how payments made during the freeze will affect overall balances, as interest also didn’t capitalize during the pause in most cases.

Experts have cautioned against requesting the refunds until even more details about how they’ll work with the plan are made available. What you should do in the interim is call your particular loan servicer and find out what they’ll need to process your refund when the time comes and how they recommend moving forward. They’ll likely want a record of your payments since March 2020, itemized by the lender, amount paid, and date of payments.

Use this time to get all that together so that when you’re ready to request the refund and, eventually, apply for your forgiveness, you have everything you need set up.