What’s going on with student loan refunds?

In June 2023, the Supreme Court struck down the Biden administration’s plan to cancel up to $10,000 in student loans for qualifying borrowers, and up to $20,000 for Pell Grant recipients. This pivot away from Biden’s forgiveness plan might have put a kink into the repayment strategy of millions of Americans who received a student loan refund during the pandemic payment pause. 

Here’s what’s happening with student loan refunds, and what to do if you received a reimbursement. 

Why did some borrowers get a refund?

During the COVID-19 payment pause, eligible federal student loan borrowers were not required to make their monthly payments. Borrowers who did make payments on federal loans between March 13, 2020, and Aug. 28, 2023, were eligible for a refund on any payments made during this time frame. Student loan refunds were not sent to all borrowers automatically, but qualifying borrowers could request a refund through their loan servicer.

You may have asked for a student loan refund for various reasons, including:

• You needed additional cash flow for other essential expenses
• You were pursuing loan forgiveness and hoped that a larger portion of your remaining balance would be forgiven
• You may have wanted to bring your loan balance back up to the maximum amount you would’ve qualified for if Biden’s student loan relief plan passed.

Do I have to pay back my refund?

If you received a student loan refund, you’re now responsible for paying it back. Since Biden’s forgiveness plan is off the table for now, any amount that was refunded to you was added back to your unpaid loan balance. Additionally, this higher principal balance has been accruing interest since the 0% interest program ended in September 2023.

If you’re unsure how much you still owe on your federal student loans, reach out to your loan servicer immediately. Your servicer’s contact information is located on your monthly student loan billing statement. You can also find your servicer through your StudentAid.gov account. 

Keep in mind, you may have a different servicer now than pre-pandemic, as many borrowers were reassigned since the end of the pandemic payment pause.  Once you know how much to repay, you can decide how best to return the funds. Options could include:

• Make a lump-sum payment: If you haven’t spent your student loan refund yet, you can apply it toward your principal balance in a lump-sum payment. This one-time payment can have a big impact on your student debt as a whole. Not only does it dramatically lower your principal balance in one fell swoop, you’ll save money on interest charges, too.
• Explore an income-driven repayment plan (IDR): Income-driven repayment plans can be an effective way to reduce your monthly payment, sometimes to as little as $0 per month. There are four IDR plan options, all of which use your income and family size to calculate your monthly payment amount. Repayment terms are 10 to 25 years, after which your unpaid balance is forgiven.

How to get a refund if you overpaid

A one-time payment count account adjustment is in effect for borrowers repaying their loans via an income-driven repayment (IDR) plan and borrowers pursuing Public Service Loan Forgiveness (PSLF). 

This adjustment updates your payment count to include credit for certain periods previously not counted towards forgiveness. For example, it accounts for the three years of mandatory administrative forbearance during the pandemic. Plus, it corrects issues where borrowers received fewer payment credits than they actually made, whether due to being on the wrong payment plan or because of late or partial payments.

An estimated 3.6 million borrowers with Direct Loans will see their payment counts increased when these additional months are included in their payment count.  This benefit could help some borrowers move the needle closer to loan forgiveness. The U.S. Department of Education expects it to be completed by July 1, 2024. After completion, some borrowers who made excess payments may qualify for forgiveness and receive a refund for their overpayments. 

You may qualify for a student loan refund if:

• You had at least one Direct Loan or FFEL Program loan held by the U.S. Department of Education
• You were eligible for IDR forgiveness or PSLF 
• You are eligible for an adjustment to the number of payments counted toward IDR or PSLF 
• After this adjustment is made, you'll have more payments on your record than you needed to qualify for loan forgiveness. 

Your payment count could be adjusted upward to count the following as payments that get you closer to forgiveness:

• Any months that your loan was in repayment status, regardless of what payment plan you were on, the type of loan you had, or the amount of your payment
• 12 months or more that your loan was in consecutive forbearance 
• 36 months or more that your loan was in continuous forbearance
• Months your loan was in military or economic hardship deferment in 2013 or after
• Months your loan was deferred, except for in-school deferment, prior to 2013
• Months your loan was in repayment or in a qualifying deferment or forbearance prior to the time you consolidated your loans 

How will I receive my refund? 

If you made more payments than you needed to qualify for forgiveness you’ll receive a refund back to the most recent of three dates:

• The date you reached the required number of payments to qualify for forgiveness
• The date that the U.S. Department of Education acquired your loan
• The disbursement date in the case of consolidation loans 

The U.S. Department of Education is automatically reviewing accounts and applying payments. You will be notified by your loan servicer if your loans are forgiven and refunds will be sent using the same method by which you made your payments. If you sent checks, you will receive a check. If you sent an electronic payment, your refund will come electronically. 

Will student loans be forgiven in the future?

Although the Supreme Court blocked the Biden administration’s sweeping debt relief plan, there are still opportunities to have your loans forgiven.

For example, a new forgiveness benefit under the Saving on a Valuable Education (SAVE) repayment plan went into effect in February 2024. Previously, forgiveness under SAVE required 20 or 25 years of repayment, but this new benefit accelerates loan forgiveness for some borrowers.

With the new SAVE benefit, if your original loan balance was $12,000 or less, you’ll receive automatic loan forgiveness after making just 10 years of qualifying payments. If your original balance was more than $12,000, the finish line to forgiveness increases by one year for every $1,000 you owe. So if you originally borrowed $15,000, you’ll be eligible for loan forgiveness after 13 years.

The state of student loan forgiveness is continuously changing — at the very least, eligible borrowers can take advantage of this new SAVE benefit.